The common phrase “timing is everything” also applies to divorce, and in particular, regarding taxes. Divorce timing affects whether you can file taxes jointly or must file separately, and sometimes it’s worthwhile to delay divorce until after December 31st.
Based on IRS rules, here are some factors to consider:
- Whether you’re married or divorced on the last day of your tax year determines whether you can file jointly or must file separately. For most people the day is December 31st.
- The parent with child custody for the greater part of the year (the custodial parent) can claim the child as a dependent
- In addition to claiming the child as a dependent, the custodial parent can also claim a child tax credit, dependent care expenses and earned income credit
- Child support is not a deductible expense
- Child support payments are not taxable income
When you file taxes jointly, even though you get a divorce and the decree states your spouse is responsible for taxes, the IRS can often hold you accountable as well. Even when you made no income on the joint return that was filed, it’s possible you will still be held accountable if more money is owed for tax, interest or penalties. There are certain exceptions that may apply though, called innocent spouse relief.
When you file separate returns, you have up to three years after your divorce to amend your tax filing to change it into a joint return. However, the opposite is not true for joint returns. When you file jointly, you cannot later amend it to separate returns. Overall, joint filing is usually to your advantage and saves money.
When dissolving a family business as part of property division, there are also important tax consequences to consider.
An experienced divorce lawyer will work with you on the timing of your divorce, helping you take into consideration how the timing affects taxes owed and property division in Bryan, Texas.