In today's world, where half of marriages end in divorce, splitting up involves more than just feelings – it also gets complicated when it comes to money. When people go through a divorce, they need to think about how it affects their taxes, especially if the divorce isn't finished by the end of 2023. It's important to understand these tax things as you navigate through the difficulties of getting a divorce.
Filing Choices: Married Filing Jointly vs. Married Filing Separately
Each individual faced with an impending divorce has two crucial tax options – filing Married Filing Jointly or Married Filing Separately. While the latter may seem emotionally and tangibly appealing, in most cases, Married Filing Jointly emerges as the superior tax choice.
Drawbacks of Married Filing Separately:
Lowered Standard Deduction: This may lead to an increase in taxable income.
Taxation of Social Security Benefits: 85% of Social Security Benefits become automatically taxable, impacting retirees' income.
Earned Income Tax Credit (EITC): Filing separately disallows eligibility for the EITC, affecting those accustomed to significant refunds due to lower income.
Child and Dependent Care Credit: Expenses for childcare may no longer qualify for this credit.
Limited Child Tax Credit: Filing separately imposes a cap on the Child Tax Credit, limiting potential benefits.
Exploring the Head of Household Option
For those with children living with one spouse, filing as Head of Household presents an alternative. However, specific qualifications must be met:
Living Apart: The couple must have lived apart for the last six months of the year.
Primary Residence: The home must be the primary residence of the child for at least half the year.
Financial Support: More than half of the household costs must be provided by the filing spouse.
Your Financial Future Matters
While acknowledging that a split is never easy, understanding the financial implications and making informed choices is crucial. If your divorce is impending and you want to explore your tax options or run hypothetical scenarios tailored to your situation, our team is here to help.
Contact Puma Accounting today at 315-336-8226 for help navigating your taxes during your divorce. Taking control of your financial well-being during this challenging time can pave the way for a smoother transition into the next chapter of your life. Let's ensure that your tax choices align with your financial goals, providing stability and clarity as you navigate the path forward.
