Even under the best of circumstances, filing for divorce can be an emotionally and financially taxing experience. That said, it is important to consider how filing for divorce at different times during the year can affect your tax situation. If you are considering filing for divorce this year, here is why you should do so early in the year—and save yourself a headache or two when Tax Day rolls around next year.
Your filing status is an important factor when it comes to taxes because it determines which forms you will need to file and how much of your income you will owe in taxes. When filing jointly as a married couple, both spouses are typically responsible for their combined incomes and debts. However, if you file separately as single individuals, each spouse is only responsible for their own individual income and debts. If a couple files separately after being married throughout the majority of the tax year, they may end up owing more than they would have had they filed jointly. Therefore, it is usually more beneficial to file together until the divorce becomes finalized—which means that timing matters.
IRS Withholdings: Another important factor when filing taxes as divorced individuals is IRS withholdings. When filing jointly, both spouses divide their withholdings between them in order to accurately reflect their joint incomes and liabilities. This arrangement can help ensure that neither spouse owes too much (or too little) come Tax Day. If you start your new year off withholding as a single person, you should withhold enough taxes to not have a tax surprise next year. But if you withheld all year expecting to file together and you are divorced before December 31, you might be in for a nasty tax surprise.
There is a second consideration to divorcing early in the year. It may let you drop your now-ex spouse from your health insurance, which might mean that you are actually bringing home more than you were when you were married.
Finally, when divorcing couples file taxes jointly before officially divorcing, they can maximize deductions – so long as their divorce does not become finalized before December 31st of that tax year. Additionally, if one spouse makes significantly more than the other (or has fewer dependents), then filing jointly before divorce may result in lower overall taxable income due to federal tax credits or deductions based on total household size and income level.
When divorcing couples choose to actually get divorced depends on many factors unique to each couple’s individual financial situations and goals. Ultimately though, understanding how timing affects taxation can go a long way towards helping divorcing couples make informed decisions about their finances—and ultimately set themselves up for financial success throughout the rest of the coming years.
So, if you are ready to move forward, reach out to my office. Call me or reach out through my website to see if I am the right lawyer to help you.