It’s the fourth quarter of the year, and if you are working on finalizing a divorce settlement, in addition to what may be tough conversations about how to do the holiday season in a newly restructured family, it’s also worthwhile to think about taxes.
Your marital status on December 31 st determines whether your tax filing status will be married or single for the entire year. Spouses who are working together to reach a mutually beneficial resolution can decide whether to complete the divorce late in the current year, or early in the next year, to minimize their overall tax obligations.
In addition to the overall tax dollars to consider in either scenario, there are other pros and cons to consider in selecting one filing status over the other. If a final joint income tax return is to be filed, decisions as to how any tax preparation fees and taxes will be paid and/or refunds will be split will need to be made. If filing separate returns, how deductions relating to items such as real estate interest and taxes and charitable contributions will be allocated, who will claim any child tax credits, how any estimated tax payments will be applied, and how any investment income will be allocated are a few of the important issues to consider.
If you prepare your own income tax returns it’s worthwhile to take the time to run sample returns under both scenarios, however for many it’s best to consult with your attorney and your tax advisor before you make these decisions. Your attorney will then be able to assist you in finalizing your divorce judgment in the current or new year, to allow you to take advantage of the best tax filing status for your situation.