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Several tax return filing matters arise for divorced and separated taxpayers. The first relates to filing status. Divorced taxpayers who qualify should file as a head of household, rather than as an unmarried individual, because of several advantages provided to head of household status.

For taxpayers who are separated but still married, joint returns may be filed, or each spouse may file a separate return. There are advantages and disadvantages for filing jointly. In addition, you need to be aware of statutory innocent spouse rules and how they impact joint filing.

In addition to filing status, divorced and separated taxpayers need to be aware of special rules for the treatment of community income.

Head of Household Filing Status

Advantages of Filing as Head of Household

• A lower effective tax rate applies for heads of household than for single individuals because of the more favorable income bracketing to which tax rates are applied
• Filing as a head of household (for separated taxpayers who are still married) avoids the potential risk of joint tax liability resulting from the other spouse's errors and omissions
• The standard deduction for heads of household is higher than for single individuals
• A taxpayer who is still married and filing as a head of household may claim the standard deduction even if the spouse itemizes deductions; this is not the case if both spouses file separate individual returns
• The income levels at which personal exemptions are phased out is higher for individuals filing as a head of household than for single taxpayers or married individuals filing separate returns

Qualifying as a "Head of Household"

To qualify as ''head of household'' when you file taxes, you must be unmarried and not a surviving spouse, and you must pay more than half the cost of maintaining your home, which is also the primary home of at least one of the following persons for more than half the year:

• A qualifying child, or
• An individual who is the basis for the taxpayer claiming a dependency exemption (other than an exemption for an unrelated individual or an exemption based on a multiple support agreement)

In addition, a taxpayer may also claim head of household status, if certain requirements are met, where the taxpayer claims a dependency exemption based on a parent who does not live with the taxpayer.

Tip: If parents have joint physical custody, it may not be clear which one had custody for more than one-half the year. This, in turn, may affect whether one of the parents may be entitled to file as a head of household. The parties should agree between themselves how this matter should be resolved, and a daily log of exactly where the child lives during the year should be maintained. To assure head of household filing status, a record of household expenses, and the source of their payment, should also be kept.

Special Rules for Determining Marital Status for Head of Household Purposes

For purposes of determining whether an individual is a head of household, these rules apply in determining marital status:

• An individual who is legally separated under a decree of divorce or separate maintenance is not considered married
• A taxpayer is not considered as married at the close of the taxable year if at any time during that year, his or her spouse is a nonresident alien
• A taxpayer is considered as married at the close of the taxable year if his or her spouse (other than a nonresident alien spouse) died during that year

Special Rule for "Abandoned Spouses"

A taxpayer who is separated but still married may file as a head of household if he or she is treated as unmarried under the so-called "abandoned spouse" provision. Under this provision, a taxpayer with one or more children who is still married at the end of a taxable year is treated as unmarried if:

• The taxpayer files a separate return
• The taxpayer maintains as his or her home a household that is the principal place of abode for a child for more than one-half of the year
• The taxpayer is entitled to claim a child as a dependent for the year, or the taxpayer would have been entitled to the deduction but he or she signed a release of the dependency exemption under Internal Revenue Code (IRC) § 152(e)
• The taxpayer furnishes at least one-half the cost of maintaining the household for the year, and
• During the last six months of the year, the taxpayer's spouse is not a member of the household

A Nonresident Alien Cannot Claim Head of Household Status

An individual who is a nonresident alien at any time during the taxable year cannot be a head of household for that year.

Joint Returns

Only married taxpayers may file a joint return for a taxable year. Marital status is determined under IRC § 7703.23. The determination of whether an individual is married is generally made as of the close of the taxpayer's taxable year. If a spouse dies during that year, however, then the determination is made as of the time of that death.

For purposes of joint filing, these rules apply for determining marital status:

• An individual who is legally separated from a spouse under a decree of divorce or separate maintenance is not considered married Certain married individuals living apart are also treated as unmarried under the ''abandoned spouse'' rule that was discussed above

Some Advantages and Disadvantages of Filing a Joint Return

The main advantages to filing a joint return are:

• The effectively lowest tax rate because of the favorable income bracketing to which tax rates are applied, especially when compared with married filing separate returns
• The largest standard deduction available
• The highest income level at which personal exemptions are phased out

The main disadvantages to filing a joint return are:

• You cannot claim a deduction for alimony or separate maintenance, also commonly known as "spousal support," and, in addition, these items are not includible in the payee spouse's gross income
• Joint and several liability for taxes that arises when a joint return is filed, and so each spouse can become liable for the other spouse's errors and omissions in filing tax returns

Tips:

• Although innocent spouse rules can provide some relief at times, the possibility of joint and several liability should often discourage a joint return, especially if there is any animosity between the parties. At the very least, each spouse should agree in writing as part of the separation or divorce settlement to pay the other spouse for any deficiencies, interest or penalties resulting from errors or omissions made by that spouse.
• If the parties agree to file jointly, they must make an agreement that fixes their tax liabilities. For example, one logical approach is to pro-rate the tax liability by using a ratio based on the parties' separate gross income. Another approach is to base liabilities on what each spouse would have paid if separate returns had been filed. Then, a spouse would pay the difference between the amount agreed upon and the amount that spouse already paid by way of salary withholding or estimated tax. Any agreement between the parties, however, will not prevent the IRS from collecting unpaid taxes from the other spouse.

Separate Returns by Married Taxpayers

Taxpayers who are married may chose to each file a separate return. This is often disadvantageous because it can result in the highest marginal tax rate because of the income bracketing to which tax rates are applied.

Another potential disadvantage is that if separate returns are filed, both spouses must itemize deductions, or each of the spouses must claim the standard deduction. It is not permitted for one spouse to itemize and for the other to claim the standard deduction.

Of course, as discussed earlier, the key advantage to filing separately is that there will not be joint or several liability for taxes imposed on the other spouse.

Tip: Often, and for a variety of reasons, parties cannot agree on whether to file a joint return. When this occurs, each spouse should file a timely separate return. Spouses may elect to file a joint return after separate returns have been filed, generally within three years of the due date of the return. In contrast, there is no procedure for electing to replace an initially filed joint return with later-filed separate returns.

Related Resources on lawyers.com

- RocketTax - Online Taxes for 2008
- Divorce: Tax, Innocent Spouses & Community Income
- Personal Tax Message Board for more help