Divorce and Tax Returns

Should we file joint or separate tax returns?

You may only file a joint return if you are married at the end of the tax year (December 31) and both of you agree to file and sign a joint return.1 The box you check on your return is “Married filing jointly.” Same sex couples and domestic partners cannot file joint returns. You qualify as married even if you are separated as long as there is no final decree terminating your marital status. A temporary pendente order does not affect your marital status. However, if the divorce is final and your marital status is terminated by the end of the tax year your filing status is either “single” or “Head of household.”

There are pros and cons to filing a joint tax return which you should discuss with your tax advisor and your attorney. Generally, your tax burden will be lower although this will not always be the case depending on your respective incomes, deductions and credits. The main disadvantage of filing jointly is that both of you are jointly and severally liable for taxes on the return, including any tax deficiencies, interest and penalties. This exposure can be partially mitigated by executing a Tax Indemnification agreement discussed below. Also the IRS may allow relief to a spouse who files jointly. The three types of IRS relief (“innocent spouse,” “separation of liability” and “equitable relief”) are discussed in IRS publication 971.

My spouse said they would sign a joint return but they are now refusing to do so?

Spouses often use tax returns as a bargaining tool. Generally, a joint return can only be filed where both parties agree and both sign the return. 2. A court will not order unwilling spouses to file a joint return. 3. However, in rare circumstances the IRS will accept a joint return signed by only one spouse where there is evidence of a clear intent to file a joint return and the non-signing spouse does not file a separate return. 4.

Effect of filing status upon child and spousal support

In calculating guideline child and spousal support, the Court has to take into account “the annual net disposable income of each parent” which is computed by deducting from annual gross income, state and federal income tax liability after considering the appropriate filing status, all available exclusions, deductions, and credits. 5. Therefore, your filing status as “Married filing jointly,” “Separate” or “Married filing separately” will have an impact on the amount of support you pay or receive. In one case, the California Court of Appeal overturned the trial court’s decision where guideline support had been incorrectly based on husband’s status as “Married filing jointly” instead of “Married filing separately.” 6. If the parties calculate guideline child and spousal support using a certified program such as “Dissomaster” and incorrectly input that the parties will be filing jointly when the Husband payor should have been filing as “Married filing separately” and the Wife as “Head of household,” the Husband may well end up paying less in child and spousal support because the program makes allowances for tax liability.

If we file a joint return what precautions should we take?

First, make sure that any tax refunds are paid to both of you. If you decide to have any refund sent to you by check make sure that the check is paid to both of you jointly. If a direct deposit is sought make sure the refund is routed to a joint account. You should reach a clear agreement as to how tax liability will be apportioned. A common approach is to prorate tax liability using a ratio based on both spouses separate incomes. Another approach could be based upon what each spouse would have paid if they had filed separate returns. Then to the extent a spouse’s share exceeds what he or she has already paid by way of salary or withholding or estimated tax, that spouse would pay the difference.

Second, if you are going to file taxes jointly, it’s a good idea to get your spouse to sign a Stipulation regarding Tax Indemnification since both spouses will be jointly and severally liable taxes on the return, including any tax deficiencies, interest and penalties. Even if the divorce (dissolution decree) states that one spouse will be liable for any amounts due on previously filed joint returns, the IRS may still hold both spouses jointly and severally liable and go after either spouse.

Example of a Tax Indemnification Agreement

IT IS HEREBY STIPULATED by Wife and Husband as follows:

1. Wife shall immediately provide the Husband with copies of all records and documents necessary for the preparation by Husband and his accountant of Joint Federal and State Tax Returns (“the Tax Returns”) for the year ending _____. Parties acknowledge that the Tax Returns will be prepared solely under Husband’s direction and control.

2. Wife shall immediately respond to any reasonable requests for information from the Husband or his accountant in the preparation of the Tax Returns.

3. Wife shall sign the Tax Returns immediately upon presentation to her. Such signing does not constitute an admission by Wife as to the accuracy of the Tax Returns.

4. In the event that the parties shall receive a Federal or State tax refund, the _____ shall immediately endorse the full amount of the tax refund check to the ______.

5. The Husband agrees to release, indemnify and hold harmless the Wife from any Federal or State claims, fines, liabilities, penalties and assessments arising out of the filing of the _____ Tax Returns, with the exception of any unreported income to the Wife that she failed to provide to Husband and his accountant in preparing the Tax Returns.

6. The Husband shall pay all costs and fees of any administrative or judicial proceedings in connection with the filing of the Tax Returns.

Be warned. Even if you have a Tax Indemnification Agreement it may not help you if your spouse files for bankruptcy. If you have doubts about the accuracy of your spouse’s, file separately.

If you are still married at the end of the tax year (December 31) but separated and your spouse will not file a joint return how should you file?

You must file either “Married filing separately” or as “Head of household” depending on your circumstances. Filing as “Head of household” has the following advantages:

• You can claim the standard deduction even if your spouse files a separate return and itemizes deductions.

• Your standard deduction is higher.

• Your tax rate may be lower.

• You may be able to claim additional credits such as the dependent care credit and earned income credit that you cannot claim if your status is “Married filing separately.”

• There are higher limits for child care credit, retirement savings contributions credit, itemized deductions.

If you are still married by the end of the tax year you can file as “Head of household” if you satisfy the following requirements:

• You paid more than half the cost of maintaining your home for the tax year. Maintaining a home includes rent, mortgage, taxes, insurance on the home, utilities and food eaten in the home.

• Your spouse did not live with you for the last 6 months of the tax year.

• Your home was the main home of your child, step child or eligible foster child for more than half the year.

• You could claim a dependent exemption for the child.

The other non-custodial spouse must then file as “Married filing separately.” Once you are divorced you may still file as “Head of household” if you paid more than half the cost of maintaining your home for the tax year and your children lived with you for more than half the tax year. There are different rules for filing as “Joint Custody of Head Household” and receiving a credit against California State taxes.7.

If one spouse files “Married filing separately” do we take the standard deduction or can we itemize deductions?

Consider this example. Bob who separated from Jackie but is still married at the end of 2005 decides to file “Married filing separately” in his 2005 taxes. He decides to itemize deductions which are considerable. Jackie his wife does not have large deductions and wants to take the standard deduction. The rule is that if Jackie qualifies as “Head of household” she can elect to take the standard deduction or itemize.8 If she does not qualify as “Head of household” and Bob itemizes she must also itemize even if she has limited deductions.9. This is true even if she files before Bob and claims a standard deduction. She will have to file an amended return when Bob claims itemized deductions.

When the parties file separately who gets the mortgage interest deduction and property tax deductions?

If the marital home is the separate property of one spouse they can claim the deductions. If the property is jointly owned, the spouse that actually pays the mortgage interest and property taxes is entitled to take the deductions. 10. Other expenses are deductible to the spouse to the extent that they are paid out of separate funds. If they are paid out of community funds each spouse can deduct one half of the interest and taxes.

Who can claim the dependency exemption and the Child Tax Credit and the Child Care Credit?

Generally, where the parties file separately it is the parent with whom the children have resided for the longest period of time during the tax year that can claim the dependency exemption and the Child Tax Credit ($1,000 for each child under 17).11. If the child lived with both parents for the same amount of time, the parent with the highest annual adjusted gross income gets to claim the child. It can therefore be important to keep a log of the actual amount of time the children spent with you. However, the non-custodial parent may take the exemption and the credit if the custodial parent signs an IRS Form 8332 “Release of Claim to Exemption of Divorced or Separated Parents” or a divorce decree or separation agreement releases the exemption and satisfies the wording of Form 8332. In California the court has the power to allocate the dependency deduction to the non-custodial parent. 12. It may do this to maximize support. The Child Tax credit can only be claimed by the parent who claims the dependency exemption. 13. Generally, whichever spouse is in the higher bracket should claim the exemption and compensate the other spouse for the shortfall.

The Child Care credit can only be claimed by the custodial parent if the other parent is not a member of the household for the last 6 months of the tax year. 14. Unlike the dependency exemption it cannot be traded although you may claim the credit even if the dependency exemption has been allocated to the other parent.

1. Generally see IRS Pub 504 “Divorced or Separated Individuals” at http://www.irs.gov

2. IRS Pub. 17, p.21. Available at http://www.irs.gov. 26 C.F.R. § 1.6013-1(a)(1)

3. Marriage of Carlton & D’Allessandro (2001) 91 Cal. App. 4th 1213.

4. In Riportella v. Commissioner, TCM 1981-463, Tax court held that Mrs. Riportella’s failure to sign a joint return was not fatal because she had signed joint returns for the previous two years, had signed a joint Form 4868 for an automatic extension, and had attempted to “sell” her signature for concessions in the divorce.

5. Fam. Code, § 4059

6. Marriage of Carlton && D’Allessandro, supra.

7. See [http://www.ftb.ca.gov]

8. I.R.C. 2(b)(c)

9. I.R.C. 63 (c)(6)(a)

10. Rev. Rul. 71-268.

11. I.R.C. 152 (c)(4)(B)(i). IRS Pub. 501, p.12-13.

12. Monterey County v. Cornejo (1991) 53 Cal. App. 3d 1271.

13. IRC 24 (c)(1)(A).

14. IRC § 21(e)(4). IRS Pub. 503.

The information is for informational purposes only and shall not constitute legal advice. Nothing in this Website shall be deemed to create an Attorney-Client relationship. An Attorney-Client relationship shall only be created when this office agrees to represent a Client and a Client signs a written retainer agreement.

Don’t Go to Jail! Here’s What to Do If You Have Failed to File a Tax Return

Results of Failing to File Your IRS Returns. If you have late tax returns, you face several possible bad consequences:

o Penalties. If taxes are owed, a delay in filing may result in penalty and interest charges that could increase your tax bill by 25 percent or more.

o Lost Refund. In order to receive a refund, the return must be filed within 3 years of the due date. If you snooze, you lose…YOUR REFUND!

o Lost Earned Income Credit. Taxpayers who are entitled to the Earned Income Tax Credit must file a return to claim the credit even if they are not otherwise required to file. The return must be filed within 3 years of the due date in order to receive the credit.

o Lost Social Security Benefits. If you are self-employed, you must file returns reporting self-employment income within three years of the due date in order to receive Social Security credits toward your retirement.

o JAIL!!! Willful failure to file a tax return is a CRIME. Non-filers of tax returns need to act quickly to avoid criminal prosecution for failure to file a tax return. If you have late tax returns, do not delay another day; delaying can cost you your freedom. Even if you believe that you have paid all the taxes you owe through withholding, or by your employer, the willful failure to file a return is a criminal offense. The best way to avoid criminal prosecution relating to late tax returns is to remedy the situation voluntarily and submit all unfiled tax returns. The IRS is far less likely to pursue a criminal prosecution if you take the first steps in resolving the issue and get all delinquent tax returns filed.

Prosecution Statistics for Non-Filer Cases:

In FY 2006 the IRS obtained:

o Indictments in over half of the non-filer cases it criminally investigated!

o Convictions in approximately 88% of the cases that were indicted!

o Jail time in 80% of the cases convicted!

o Average jail sentences were 40 months long!

File All Tax Returns

You should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on your circumstances, nonfilers with late tax returns may qualify for a payment plan.

In short, delay does not help your situation. If you are a non-filer with delinquent tax returns, you need to file those late returns as quickly as possible.

Documents Required to Prepare a Return

In order to assist with preparing a tax return, taxpayers should bring any and all information related to income and deductions for the tax years for which a return is required to be filed. Some of the documents may include:

o Forms W-2 – Forms from employers showing wages for the year.

o Forms 1099 – Forms from banks and other financial institutions showing interest and dividends. Forms 1099 also report self-employment income.

o Information on expenses to claim on the return, such as itemized deductions, child care expenses, or employee business expenses.

o Social Security numbers for dependent children and any other person claimed as a dependent.

Copies of the last tax returns that you filed.

Can I File By Myself…or Do I Need a Lawyer?

Nothing requires you to hire an attorney to file late tax returns.

However, due to the fact that there is a possibility of criminal prosecution, you should STRONGLY consider hiring an attorney to help you file delinquent returns and protect your interests in the process.


Delinquent tax returns are a serious problem. Non-Filers should take immediate action to get late returns filed. Voluntary compliance can help reduce or eliminate exposure to penalties, interest, and possible criminal prosecution. Since willful failure to file a tax return is a crime, non filers should consider hiring an attorney to assist them with coming into compliance.

Tax Return Online Helps In Getting The Accurate Information

The accurate preparation of tax can actually prove to be a tedious as well as a time consuming task. Moreover, tax return preparation also requires a lot of expertise and domain knowledge as not just anybody and everybody can prepare accurate tax return details. Paying the accurate amount of tax and that also on time is something that everybody desires to do and so everybody wants to be prepared with their tax details before the tax return session comes in America. Precisely speaking there are two ways of going about it. Either you can get a CPA to do the work on your behalf or you can calculate the amount you have to pay as tax yourself. Preparing your tax return online is one of the best options that you can utilize for calculating your taxes. There are several sites on the web where you can calculate your tax return.

In fact, opting for tax return online can prove to be of great advantage to you as not only it is time saving but also gives out accurate results. Filing tax return online makes the entire process much eased out for you and also hassle free. Shortage of time is something that everybody complains of these days and if you can actually prepare and file your tax returns online, you will get benefit from this, as you will get to save a lot of your precious time. In addition, going in for a Tax Return Online also gets the work done more promptly and the calculations are highly satisfactory as you are satisfied that the calculations have been done more accurately. Moreover, the best part with tax return online is that you will be the person who will be doing the calculation so you will need to be more accurate with your calculations.

Filing your tax return online saves you from the hassles of dealing with an accountant or a CPA. When the tax return session comes, everybody gets all baffled while preparing to pay off their tax on time so that they do not face any serious problems. In fact, the tax-calculating season witnesses a heavy influx in the offices of the accountants and CPAs. This results in the over burdening of accountant with work related to the tax calculations and preparation of tax returns. Therefore, if you opt for tax return online you are saved from queuing up outside the office of the accountants, and that is not all, you will not even have to pay the accountant for calculating your tax return. Tax return online can be filed in a much simple way and in fact, it can filed at a much faster rate than filing it manually. Once you start filing your tax return online, the amount is automatically calculated. Moreover, this is also convenient as you can file the tax online at any point of the day.

Tax return online is one of the most convenient and easiest ways of filing the tax returns on time and this also helps in the accurate filing of tax. Therefore, you can now give your accountant some rest and go ahead yourself with the filing of tax return online.