Determining your tax filing status can be tricky at times. I see the same questions on social media and a few times per year in my office where people are confused on what filing status to use when they are estranged from their spouse. On the tax subgroup in Reddit the question popped up a few times this tax season already and with two new clients in the past week.
I included a decision tree to help you determine your filing status. However, there are details that didn’t fit within the decision tree neatly so it is important to read the text of this post to assure you are using the correct filing status.
There are several reasons when you may want to consider filing a separate return from your spouse. In rare instances your combined tax liability is smaller. Example: spouses have widely different incomes and one spouse has a very large uninsured medical expense.
A more important reason to file a separate from your spouse is if you suspect malfeasance. If you file a joint return and your spouse under reports income and/or overstates deductions and/or credits you are liable for the tax debt if the IRS discovers the irregularities. The only way to sever liability on a joint return is if you signed under threat or duress. Threat or duress is very hard to prove and the IRS has a history of denying relief when there are no reports of abuse to law enforcement.
The final reason to file a separate return is because you have no choice because you don’t know where your spouse is. This is more common than you think. The Reddit subgroup above has similar questions every tax season. As mentioned, two new clients had this issue in my office in the past week.
If you can’t find your spouse or she/he refuses to file a joint return, you have limited options. The decision tree in this post is an easy way to visualize your choices. In short, if you lived with your spouse at any time in the last six months of the year you must file either a joint or married filling separate return. If you lived apart the last six months of the year and provide more than half the support for yourself and child you can file as head of household. Where no children are involved you are limited to MFJ or MFS. If you are legally separated or the divorce is final you can file as single. You will need the services of a competent attorney if you can’t find your spouse to facilitate a legal separation or divorce proceedings.
There are tremendous negatives to filing a MFS return. Many credit are lost (earned income credit, adoption credit and child and dependent care credit are a few). Education credits and the student loan interest deduction are unavailable on a MFS return. If you own income property the passive activity loss limit is reduced to $12,500 ($0 if you lived with your spouse at any time during the year).
If your spouse itemizes on a MFS return you MUST also itemize, regardless if you have any Schedule A deductions or not. If you can’t find your spouse or he refuses to communicate with you, you will not know if he itemizes so you may have no choice other than to itemize.
You report only your income and deductions on a MFS return unless you live in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA and WI). In community property states you report half the community property income and deductions. If income and deductions are not reported to the other spouse the benefits of community property law can be lost. Community property laws can be circumvented fairly easy if the taxpayers live apart.
Let’s review the decision tree and review the notes that follow.
Notes to the decision tree: If your spouse died during the year you can still file a joint return for the current year. If you paid over half the costs of keeping a home with dependent child you can file as a qualifying widow/er for the two years following the death of your spouse. A qualifying widow/er enjoys the same advantages of a MFJ return.
Temporary absences for education or military service do not count as living apart.
If you sign a release of exemption as a custodial parent and would otherwise be allowed the dependent exemption you can file as head of household if you lived apart from your spouse the last six months of the year.
A parent does not have to live with you to claim the exemption if you provided more than half the cost of keeping the parent’s home for the entire year.
The simplest part of the tax return can become a confused mess when unique situations make an appearance. The raw number of requests involving a missing spouse required me to publish on the subject.
If you have additional questions leave a note in the comments. I’ll try my best to answer questions promptly. During tax season and when on vacation I’ll need more time to respond.