IRS Publication 504 is the instructions booklet that covers tax filing status for Divorced or Separated Individuals, and is where one should go so that clarity occurs around what one’s marital status is, as far as the IRS is concerned. The IRS takes your marital status as of 31-December of the tax year. If you are married, but are considering a separation, the IRS still views you as married. You and your spouse do have the choice of filing jointly or separately if you both wish. If you have filed for separation or divorce, but it is still not final by the end of the year, then your status is still Married, Filing Separate. Apparently, according to the experts, if you and your soon to be ex-spouse can amicably agree to it, you can still fill Married, Filing Joint and get whatever benefit it gives you both. If the separation or divorce is final by the end of the year, then by the IRS rules, you are required to file Single. In one scenario where your separation or divorce decree is not yet final, if you are living physically separate from your estranged spouse for six months or more in the tax year, and if you are supporting a child, you are allowed to file as Head of Household. Once the separation or divorce decree is final, and you are supporting a dependent, then you are Head of Household, and must file as such.
Given that you may have more than one possible marital filing status available to you while you are in this shifting situation, it is very worthwhile to calculate your taxes under the various options available and see which filing gives you the best return. Dependents, schedule A, earned income credits, and other deductions play out differently under different marital statuses. Married, Filing Jointly is the status that results in the lowest taxes, so it is worthwhile if you can agree to it one last time. If you file Married, Filing Separate, alimony can be claimed, if paid, of course.
Head of Household benefits over Single with a higher standard deduction and lower tax rate. If filing Married, Filing Separate, it has the worst overall deductions and tax rate. In this filing status, both spouses / ex-spouses must file standard deductions or both must itemize their separate deductions. Each filer is accountable for only his / her taxes and paperwork. This is especially important if a spouse suspect the other spouse of falsifying a tax return. In particular and also lost are the following tax benefits:
• Tuition and fees deduction
• Hope or Lifetime Learning Educational Credits
• Student loan interest deduction
• Tax-free exclusion of Social Security Benefits
• Tax-free exclusion of US bond interest
• Child and Dependent Care Credit
• Earned Income Credit
• Credit for the Elderly and Disabled
Some experts recommend doing a comparison check between filing jointly or separately when the two spouses have a great disparity between their individual earnings. In some situations it does prove to be better to file separately.