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Tax filing status during divorce proceedings

Which tax filing status can you choose during a Pennsylvania divorce proceedings?

The first thing to understand is that your tax status is determined by your marital status on December 31 of the tax year. So, if you are single on December 31, 2015, then you can file your federal taxes as single or head of household for tax year 2015. But if you are still married on December 31, then you can file your federal taxes as married filing jointly, married filing separately or head of household.

State tax designations in Pennsylvania are the same, except that Pennsylvania does not have a "head of household" designation.

Some people mistakenly believe that being "separated" on December 31 can affect your tax status in Pennsylvania. It cannot. Unlike some other states, Pennsylvania does not provide for a formal and legal separation. Also, determining a "date of separation" to value marital assets or to assess the ripeness of a divorce action is another issue entirely.

Which tax filing status should you choose during a Pennsylvania divorce proceeding?

Given the many possible considerations, the ultimate answer to this question should be determined by your accountant or attorney. Only they know the individual facts of your case. But here are few general guidelines you can take to your accountant or attorney:

1. In general, married filing separately is the worst designation. It provides the worst combination of lower exemption amounts and tax bracket creep. However, there are times when filing married filing separately may make sense. One instance would be where your spouse is engaged in shady or illegal tax activity and you want to steer clear of such trouble and are not eligible for head of household. Another instance may be where you pay a lot in spousal support or "unallocated support" (more on that below). All of that money paid can generally be deducted from your taxes.

2. In general, either married filing jointly or head of household is the best tax designation if you are still married and eligible for the head of household designation. To file head of household, you must also have a dependent living with you and meet other requirements.

Married filing jointly provides the highest total exemption level and good tax brackets. On the other hand, Head of household is superior to married filing separately for exemptions and bracket creep while also offering the chance to file separately from your spouse. This may or may not be a good thing, based on your case.

3. In general, child support by itself is not tax deductible and spousal support (or APL) is tax deductible. The issue arises when they are smashed together without dividing between the two. Such a non-divided order is called an "unallocated order".In general, when you pay support for a spouse and child that is not "divided" between spouse and child (i.e. unallocated), you may deduct the entire amount from your taxes. This can be a huge consideration when choosing filing status. No other area of law is as consistently misunderstood by accountants. Many accountants misread support orders and think that they are "allocated", when they are actually "unallocated". I have had to instruct accountants time and again on this point and sometimes I have been required to provide the tax law cases.

4. If you are single on December 31 of a tax year, it is generally better to file head of household (if available to you) then single. But even here, there can be individual factors that would point towards filing single.

Remember to seek out your family law attorney and/or tax accountant to make your final determination on these matters. And choose an attorney (and accountant) who understands the intersection of taxes and divorce.