Filing taxes during a divorce

MT. PLEASANT — Feelings of confusion, frustration, and overwhelm are all too common surrounding tax season. Add to that the complications of filing during a divorce, and the whole situation can feel impossible.

Mike Vance, a Mt. Pleasant attorney admitted to the U.S. Tax Court, offers some advice for those in this particular situation.

“Number one, make sure everyone is in agreement on who is going to claim which dependent,” Vance said.

According to the Internal Revenue Service, “The parent with custody of a child can claim that child on their tax return. If parents split custody fifty-fifty and aren't filing a joint return, they'll have to decide which parent gets to claim the child.”

While in the midst of divorce proceedings these claims are often less straightforward. Therefore, clients and representative commonly need to come to an agreement.

“Just make sure you’re on the same page and you figure out how you’re going to file your tax returns,” Vance suggests.

“Number two,” Vance said, “choose the correct and applicable filing status.”

According to the IRS, “Divorcing couples who are still married as of the end of the year are treated as married for the year and must determine their filing status.”

“If they are still married as of Dec. 31 they may find it best to still file jointly,” he explained.

“Do what is going to be in the best interest of the family,” Shutts advises. “I have people that don’t want to file jointly with their soon-to-be ex-spouse due to emotional reasons instead of financial ones.”

The IRS offers a “What is My Filing Status Tool” on their website to help determine what status makes the most sense for their situation.

According to the IRS filing status options include:

Married filing jointly — On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.

Married filing separately — If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the taxes due on their own return. People should consider whether filing separately or jointly is better for them.

Head of household — Some separated people may be eligible to file as head of household if the following applies:

Their spouse didn't live in their home for the last six months of the year.

They paid more than half the cost of keeping up their home for the year.

Their home was the main home of their dependent child(ren) for more than half the year.

Single — A taxpayer will not file as single until the final decree of divorce or separate maintenance is issued. They will file as single starting for the year they received the decree, unless they are eligible to file as head of household or they remarry by the end of the year.

Finally, Vance encourages parties to outline allocations of personalized itemized deductions and additional sources of income.

Shutts offers a few additional words of wisdom concerning tax season and an ongoing divorce.

According to Shutts, her number one piece of advice is to consult your divorce counsel.

“ … hire a tax preparer,” she added. “I know many people do their taxes on their own, but having someone who has training and experience, quite frankly, is helpful.”

“If there is a refund that is an asset, then that could be divided [in court,]” she said. “It is a liability that a judge could factor into the division of assets and debts.”

On the other side, “If someone owes $10,000 and it is a joint income tax return, they could both be responsible for that,” Shutts warns.

When placed in a situation of discovering bombshells like a soon-to-be ex-spouse owing a large sum of money, or a spouse’s dishonesty on tax forms, the IRS does offer relief through of Innocent Spouse Relief.

“You’re now in the process of a divorce, but your tax returns have been filed for the last five years, and one spouse is engaged in the business where they’re able to hide some kind of receipts then the other spouse needs to definitely think about Innocent Spouse Relief,” Vance said.

“What happens more often,” Shutts said, “someone files for divorce and then they find out that their spouse didn’t file the tax returns at all.”

According to Vance, the Innocent Spouse Relief is reactive to discovering these truths. Some of this information appear throughout the divorce proceeding or the IRS might file a grievance later on.

That is when the innocent spouse would file Form 8857, Request for Innocent Spouse Relief.

“You’re going to file this when you find out your spouse was not honest on the tax return and you didn’t know it was truthful,” Vance said.

Overall, Vance and Shutts stress the Importance of making sure you file.

“You really don’t want to embroil yourself with an IRS dispute on top of your divorce because it won’t come to light until after your divorce and you’re going to have a real mess at that point,” Vance said of the important of filing taxes correctly during a divorce.

“It’s not illegal not to pay your taxes,” Whitfield & Eddy Attorney Anjela Shutts said. “It is illegal not to file. If you don’t file an income tax return you can be criminally charged for not filing.”

According to Shutts, even if a person files and does not pay what they owe, the IRS will not file criminal charges. However, they will likely pursue other action.

“Get your tax returns filed, period,” Shutts said.

Comments: AnnaMarie.Ward@southeastiowaunion.com