As a separated couple, there can be a lot of confusion when it comes to filing your taxes. This is why in this article we are going to cover some of the most important tax tips for separated couples. Let’s get started!
Important Tax Tips for Separated Couples
Weigh Your Options When it Comes to Filing Taxes
When it comes to filing taxes, it doesn’t matter if you are legally separated. If you are living apart informally from each other, you can still prepare a joint return. This can also be done if you have filed for a divorce as well.
Then again, just because you have the option of filing your taxes jointly doesn’t mean you have to or you definitely should. For the tax year 2019, the standard deduction for a married couple was close to around $24,400. This is exactly twice the amount that a single person would end up paying. Therefore, there happens to be no real advantage to this if unless one of you earns significantly more than the other or doesn’t work at all. It would then make sense for you to take most or all of the $24,400 against one person’s income only.
Alternatively, you could also file as single and the head of an entire household. This will entitle you to a deduction of $18,350 if you have paid more than half the cost of keeping your home for the tax year. Also, you have to make sure that your house was the main home of a child who happens to be your dependent.
Pay Attention to Your Retirement Assets
Whilst thinking of a separation or a divorce, it is highly unlikely you will be paying much heed to your retirement account. However, you should consider paying attention to it, or it might end up becoming a very costly problem afterward.
Now as part of your separation, some of your retirement earnings may very well go to your spouse or even vice versa. In this case, you could have significant tax implications if you happen to fail at using the correct process. Make sure you are using a QDRO to arrange for the transfer of 401(k) or 403(b) retirement assets from one spouse to another.
This will allow tax-free access to the funds and moreover will also avoid all penalties related to early withdrawal. The same goes for the transfer or rollover of retirement funds from an IRA as well. You will need to first make a transfer incident to divorce which will then, in turn, offer the same tax benefits.
Pay Attention to Child Tax Credit
A Child Tax Credit can shave off a whopping $2,000 per child from your tax bill. Therefore, if you and your now-separated spouse are filing individually, then you should consider deciding who will claim your child as a dependent. This determination will massively impact potential tax credits.
