Tax Status and Divorce

 Posted on July 08, 2014 in Divorce

dependent exemptions, divorce, divorce and marital status, tax status, tax deductions, tax brackets, tax credits, dependent deductions, married filing jointly, married filing separatelyFiling taxes can be a complicated endeavor at the best of times, and doing it during a divorce only serves to make it more difficult. This is because many parts of a person’s taxes depend on marital status and family relationships. Those sorts of relationships can affect things like tax brackets, deductions, and tax credits.

Two of the largest issues that a divorce presents in regards to taxes are marital status and dependent deductions. Marital status, which includes categories like single, married, or head of household, alters a person’s tax bracket and it can raise or lower their standard deduction. Dependents, which refers to people relying on the tax filer for care, allow the filer to claim them for the purposes of tax deductions.

How Divorce Affects Marital Status

The most obvious way that divorce impacts a person’s income tax filing is via their marital status, which has an effect on the tax rates applied to specific income levels, as well as on the standard deduction allowed by the filer. There are four basic filing statuses that most people will claim: single, head of household, married filing jointly, and married filing separately. Most of these are self-explanatory.

A single status means that the person is unmarried. Married filing jointly means the spouses are filing a single return. Married filing separately means the spouses are each filing their own return. The unusual one is head of household. The head of household status denotes a person, usually single, who is caring for a dependent. The head of household status receives preferential tax treatment in comparison with the single status.

Obviously, going through a divorce will alter the marital status categories available to someone. A single person cannot file as married and vice versa. This leaves open the question of how to handle the tax year in which the divorce occurred, if the spouses were married for part of it and single for the rest. For tax purposes, the IRS declares that marital status is judged as of the last day of the year, so in the example the couple would be counted as single.

How Divorce Affects Dependent Exemptions

Another area in which divorce can affect taxes is in dependent exemptions. These exemptions relate to the number of qualifying people relying on the filer for support. The most common example of a dependent is a minor child that the filer supports. For most people, that dependent exemption will not change in divorce. However, divorces involving blended families present a unique issue, since stepchildren also qualify as dependents. The U.S. Tax Court only recently ruled on this issue, holding that stepchildren remain stepchildren after the divorce, qualifying them as dependents for exemption purposes.

Filing for divorce is an important decision that can have a significant impact on many different areas of your life. Whether you have already made the decision to file or you simply want more information, contact a DuPage County divorce attorney today. Our firm can help you find the right type of divorce strategy for your specific situation.

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