Chapter 11 Taxes: How Do I File and Pay?

• Library: Divorce & Money (Nolo) (2020 Ed.)

CHAPTER 11: Taxes: How Do I File and Pay?

Get a Rough Estimate of Your Tax Bill

Which Status Is Better to Use When Filing Tax Returns?

When in Doubt, File Separately

What to Know If You File Jointly

Your Responsibility When Signing a Joint Return

What If Your Spouse Refuses to Sign a Joint Return?

Other Concerns When Filing a Joint or Separate Return

Dividing the Joint Tax Liability—Or the Refund

Tax Issues Involving Temporary Alimony or Child Support

Get Your Tax Agreement in Writing

Questions to Ask a Tax Adviser

When you're divorcing, you can't wait until just before April 15 to think about your taxes.

While you do not have to confront every small detail in your tax papers when you're in the midst of a separation, you can and should take basic precautions that will save you money and prevent hassles later.

For instance, suppose you assume that you and your divorcing spouse will file income taxes jointly. At tax time, however, you discover your spouse has already filed separately. How will you pay the IRS for taxes you did not expect to owe? Better to grapple with the filing question now than to make costly assumptions.

The following guidelines will help you address the income tax questions that are most important at this stage of your divorce. As you move through the rest of the divorce process (and this book), you will face more complicated tax issues regarding your property. For now, stick to the basics.

Cet a Rough Estimate of Your Tax Bill

You don't want any nasty surprises next April 15. To avoid problems, make a rough calculation of your federal and state taxes. Ask your accountant or tax preparer to help you if need be. Figure out the amount you would pay if you filed separately and the amount you would pay if you filed with your spouse. Even if you haven't done all the paperwork or don't have all the information necessary to find the exact amount, it's useful to get a tax estimate. The estimate will at least give you a guide for deciding how to file. You'll also be able to use the information if you eventually need to convince your spouse to file jointly.

If possible, discuss the decision on tax filing with your spouse, lawyer, accountant, or tax adviser. Your goal is to reach an agreement about filing and then document that agreement in writing.

If you don't have access to tax information. Often, one spouse does most of the bookkeeping for a family. If your spouse played that role and does not want to give you the information, you may have to get a court order or use legal discovery (evidence-gathering) techniques. For either, you'll probably need the help of an attorney. Consult the appendix for resources. Before obtaining legal help, however, be sure to point out to your spouse that withholding information will only increase both of your legal bills, and you'll get the information eventually.

You can contact your accountant for copies of previous returns, or ask the Internal Revenue Service for Form 4506. By completing the form and returning it to the IRS, you should be able to get the tax returns you need—as long as you signed the return when it was filed. The easiest way to get forms from the IRS is to visit the website at www.irs.gov. From this address, you can link to state tax forms, tax tables, and publications, and search for divorce-related tax topics by a word search. Upon request, the IRS will send you an account transcript, created from information on your tax returns, from as far back as ten years.

The IRS has several publications that can help during a divorce. The most important are:

• Publication 17, Your Federal Income Tax (For Individuals)
• Publication 501, Exemptions, Standard Deduction, and Filing Information
• Publication 504, Divorced or Separated Individuals
• Publication 505, Tax Withholding and Estimated Tax
• Publication 555, Community Property. If you live in the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, many federal tax rules are applied differently than in the other states, which are called equitable distribution states.

If you have to wait for copies of previous years' returns and financial information, you can work with a tax accountant to estimate the amount you will owe the IRS. You can find out about deductions in several ways. Banks and lenders can tell you how much interest has been paid on a mortgage, and charities can give you the dollar amount you or your spouse donated. Call your spouse's employer to verify salary information and check copies of any loan applications you have. Chapter 12 will walk you through preparing "Net Worth" and "Cash Flow" statements, which can also help clarify your tax situation.

Which Status Is Better to Use When Filing Tax Returns?

One of the most important decisions you will need to make is whether to file a joint return with your spouse or to file separately. The table below summarizes the types of filing status available to you and the requirements for each.

When in Doubt, File Separately

If you and your spouse are unable to agree on how to handle your taxes, file separately. Generally, you can amend two separate returns (yours and your spouse's) to file jointly if you change your minds. You cannot, however, amend a joint return after the due date for that return in order to file separately. If you initially file separately, you have only three years to amend your returns and file jointly. Although filing separately may actually cost more in dollars, it could save you a great deal of grief.

You will, of course, want to file separately if it will save on taxes—but you should also file this way if your spouse misrepresents income or expenses. If you file jointly, you could be liable for back taxes, interest, and penalties on a joint return. By filing separately, you will lessen your risk and keep your options open. Bear in mind that if you file separately, you forfeit the right to certain deductions. These include education credits, child or dependent care expenses in most instances, the earned income credit, and interest paid on student loans.

Except in community property states, if you file a separate return, you generally report only your own income, exemptions, credits, and deductions. If your spouse had no income, you can claim an exemption for your spouse. If your spouse refuses to provide the information necessary to file a...