5 Questions for Divorcing Spouses to Consider During Tax Season
Divorce requires people to make many adjustments to their lives, and tax season is but one reminder of that. If you are in the process of divorcing, you may have questions about how you should be filing. In lieu of the deadline extension, not-yet-divorced spouses have more time to address issues and iron out important decisions that need to be made.
Your marital status on December 31st, 2020 sets the precedent for the whole year, so if you were not legally separated or divorced by that date, you must either file jointly or as married filing separately. Unfortunately, if you are considered married—for tax purposes—but choose to file separately, your taxes will likely be higher than if you were to file jointly.
When children are involved, the process can become even more intricate. However, if you elect to file jointly, you can avoid the debate of who will be claiming your children as dependent. If you are married filing separately, only one parent can name a qualifying child, along with the tax breaks that follow.
Below is a list of questions for divorcing parents to consider while filing their taxes:
- Do we need a longer extension period if available?
- Are we going to owe taxes above the taxes withheld from our salaries/compensation, and if so, how are those taxes being paid?
- Who is preparing the returns, and when am I going to receive them to review prior to filing?
- Do I have enough information to understand the information on the tax returns?
- Is there a need for a “neutral” accountant to review the return on my behalf?
Applying For a Longer Extension Period
A collective sigh of relief could be heard as news of the 2021 tax extension broke. With just over a month of extra time to file taxes, people have more time to collect their forms and get their taxes in. This allows divorcing spouses more time to coordinate with their ex-partners. Filing for a further extension will give people until October 15th to file their tax returns without penalty. If a divorce is not amicable, and a couple is running into disputes, this may be the best option to get finances in order and accurately file. Ultimately, the way you file—either jointly or married filing separately—is up to both you and your ex-partner. If you are having trouble coming to an agreement, filing for a longer extension period can provide more time to enlist the help of a neutral accountant and divorce attorney.
Owing Additional Taxes
There are many instances where you may owe taxes beyond what was initially withheld from your salary or other forms of compensation. Some examples include taxes on interest income, foreign income, dividends, college financial aid, and K-1s. In addition, you could be taxed further on the income you received from your employer, which may not have had sufficient withholdings depending on tax law changes. The drawback to filing jointly when you are in the process of getting divorced is that you become jointly and severally liable for all taxes due, including the taxes on their income.
Both parties are equally responsible for the taxes owed, therefore it is up to you and your ex to agree on the best course of action. The agreement should be in writing, and should outline each spouse’s portion of the liability and any requirements for on-time payments. If you are unable to come to a decision, it is in your best interest to contact your lawyer.
Preparing Your Taxes
There are different routes you can take when filing your tax returns, depending on how much money you are willing to spend. If you are filing jointly, you and your ex-partner will need to come to an agreement on whether you will be responsible for completing your taxes, or whether hiring a tax professional is the better option.
Some of the more well-known software programs you can use to complete your taxes on your own are TurboTax, Tax Act, and H&R Block. If you elect to file your taxes this way, you will be able to review your taxes throughout the entire process, giving you the visibility necessary to confirm you have both entered the correct information throughout.
Working with a neutral CPA or EA may be the best option if you need more guidance throughout the filing process. Many people choose to hire an accountant or tax professional because they want to make sure their taxes are done right. It’s important to find a neutral accountant with the right level of experience and specialization.
Throughout this entire process, it is important to remember that communication and teamwork are vital to getting your finances in order, and that it is necessary to approach your taxes with an unbiased mindset, free from the emotional clutter that divorce so often causes.
At Lazor Rantas we understand the full spectrum of issues that can impact divorcing couples, and are prepared to help. If you are considering divorce—or are in the early stages of a divorce—and need an experienced attorney to guide you through the process, contact us today. We proudly serve clients throughout New Jersey as they navigate divorce and other complicated family law matters.