An interesting filing status tax circumstance may arise in any year when two married taxpayers are “not so happily married” and live apart during the year. Normally, married tax payers will choose to file their tax returns using a Married Filing Jointly (MFJ) or Married Filing Separately (MFS) filing status. However, Head of Household filing status is another filing status option that offers more favorable tax rates. A taxpayer who is considered unmarried may file using the Head of Household (HOH) filing status.
A married taxpayer who is a s U.S. citizen or resident during the entire year can file as HOH if all of the following conditions are met:
- The taxpayer files a separate tax return
- The taxpayer paid more than half of the cost of keeping up his/her home for the tax year
- The spouse of the taxpayer did not live in the home during the last 6 months of the tax year
- The taxpayer’s home was the main home for the more than half of the year of their child or stepchild, adopted or foster child. The child must be a dependent (or would be a dependent except the parent released the exemption to the noncustodial parent).
The taxpayer should consider the expenses such as property taxes, mortgage interest, rent, utilities, repairs and maintenance, insurance, food consumed on the premises and other household expenses when calculating their share of maintaining the home expenses as mentioned above relating to keeping up their home for the tax year. A worksheet should be prepared and this calculation should be part of the taxpayer’s tax file for any year in which the unmarried HOH filing status is chosen.
If one of the married taxpayers qualifies to use the Head of Household (HOH) filing status, then the other married taxpayer will file their tax return using the Married Filing Separate (MFS) filing status.
Please contact our office for more information.
As is the case in life, sometimes a divorce is the course of action chosen by couples. There are many tax issues that a couple should address in the divorce proceedings such as:
Filing Status, Dependency Exemptions, Retirement Plan Distributions, Determining Tax Implications of Alimony, Personal Residence Gain Exclusion, Allocation of Estimated Tax Payments and Allocation of Net Operating Losses.
Let’s not forget that taxpayers also need to address any joint return issues and any outstanding tax liabilities from previous years. As a general rule, when a married couple files a joint tax return, each spouse is jointly and severally liable for the tax due and for the interest and penalties that may become due. This liability exists for both taxpayers even if they later become divorced. It is important to note that the divorce decree itself will not override this rule if it calls for its own division of responsibility in regard to the outstanding tax liabilities of the taxpayers.
It is very important for couples to consider that filing status in the year leading up to the divorce. Furthermore, if a couple resides in a community property state then they should also obtain an adequate understanding of the community property tax laws that would be applicable to their fact pattern.
If a couple has a divorce and there are past tax liabilities, then the divorce decree should address this and state each couple’s responsibility for the unpaid taxes attributable to the years that the couple filed joint tax returns. However, this cross indemnification provisions in the divorce decree are ineffective against the IRS assertion of unpaid taxes. The provisions could become useful in state courts a mean of enforcing the obligations between the parties themselves.
Finally, couples should also consider the Innocent Spouse Relief Provisions. One of the couples can be relieved for paying taxes, interest and penalties if their spouse (or former spouse) improperly reported items or omitted items on your jointly filed tax return. If this is the case then generally, the tax, interest and penalties that qualify for the relief can be allocated to the spouse who improperly omitted the items from the tax returns.
In order to qualify for innocent spouse relief then you must meet all of the following conditions:
- 1. You filed a joint return
- 2. There is an understatement of tax on the tax return that is due to erroneous items of your spouse or former spouse.
- 3. You can show that when you signed the joint return you did not know, and had no reasons to know that the understated tax existed.
- 4. Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax.
This blog is not meant to be all inclusive, please contact our office for further information and to speak to one of our tax professionals.