Oftentimes, filing jointly is the best way to go. A married taxpayer may claim the child and dependent care credits and, in the case of low-income taxpayers, the earned income credit. Also, some deductions, such as a dependency exemption for a non-working spouse or the deduction for a spouse's contributions to an Individual Retirement Account, can only be employed on a joint return.
Some of the other factors you should bear in mind and discuss with your tax advisor with respect to filing status would be the resulting tax rate, deductions and credits to be lost or gained, tax losses from a partnership or business losses, as well as potential liability for any potential misrepresentations by your spouse with respect to his or her income or expenses. As previously mentioned, you could be held accountable for any misrepresentations by your spouse on a joint return and be forced to pay the resulting price if necessary, even if the divorce is already finalized.
This would hold true unless you could qualify as an "Innocent Spouse". Under these provisions, which basically hold true in both Community Property States and otherwise, you would not be held liable if you could prove the following:
You could also qualify as an Innocent Spouse under either the Forgery Rule or the Duress Rule. Under the guidelines established by the Forgery rule, you would not be held accountable if you could prove that you had no income and therefore were not required to file a return. It would therefore be assumed that you gave no authorization for your spouse to sign your name to any joint return and you may be able to state that your spouse actually forged your name. However, if you DO have income and DO NOT file separately, the IRS will take it for granted that you intended to file jointly and therefore gave authorization for your spouse to sign for you. With respect to the Duress Rule, you must be able to prove that the pressures exerted upon you by your spouse were irresistible and that you would not have signed the return if these pressures were not exerted.
In the event that your spouse will not sign a joint return for whatever reason, you and your spouse will have to both file separately. If your spouse does not file a separate or had no income or other earnings, you may file a joint return using your name only. However, this is possible only if it is beyond a shadow of a doubt that you intended to file together. If the spouse who is refusing to sign a joint return does so because they fear the other spouse's return is in some way fraudulent, the other spouse MAY NOT file a joint return without the other's signature.
If one spouse has entered into an agreement (known as an offer in compromise) to pay the IRS less than what is actually due, plus interest and penalties, it is still possible for the IRS to go after the other spouse to collect the outstanding monies. In addition, an indemnity clause in a marital agreement (where one spouse agrees to hold the other harmless for any tax liability) offers NO real protection from the IRS. In fact, the IRS can even seize a joint taxpayer's assets or property even AFTER it has been divided in a divorce decree to satisfy an outstanding account. If your marriage is annulled, the IRS views this as if the marriage had never actually taken place. Therefore, if joint returns were filed, then corrected, separate returns will have to be re-filed.
Once the decision to file a joint return is made, it should also be collectively determined what to do with any refunds or additional taxes that may occur. This decision should also be documented in writing as well to avoid any future misunderstandings or hostility. A simple solution would be to agree to split any refund or share an equal burden of any additional tax that may come due.
Resources & Tools
FILING JOINT OR SEPARATE RETURNS -- One of the most important tax decisions a divorcing couple makes is filing joint or separate returns. A couple who are married on the last day of the year may file jointly even if they are permanently separated in anticipation of a divorce. Couples who file jointly, however, have joint and several liability, which means "both spouses are each entirely responsible for the return and the tax liability and its tax obligations."
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