One thing divorcing couples in New Jersey need to consider is whether they will file their income taxes jointly or separately for the last year of marriage. A person’s tax status is determined as of the last day of the filing year, so those whose divorces have not been finalized as of Dec. 31 are still considered “married” for income tax purposes. There are reasons for and against filing taxes in both ways for the final year of marriage.
Filing separately has multiple disadvantages over choosing to file jointly. When people choose married filing separately, each will have lower levels of income subject to tax. The standard deduction for the status is also much lower, and many itemized deductions are unavailable when filing separately. People filing separately are also not allowed to take multiple credits, including the earned income credit. The child tax credit may be available, but at a substantially lower amount.
The primary reason for filing separately instead of a joint return during a divorce or separation is that doing so helps with untangling finances as part of the process. Still, people may want to look at what filing both ways will mean for them. If they can communicate reasonably with their spouse about which way to file, they may want to choose to file jointly in order to have lower tax bills or to enjoy larger tax returns that they can divide between each other.
In a high-asset divorce case, filing a joint return may be beneficial for the higher-earning spouse. Since there are tax consequences associated with different types of assets that may be divided in the divorce, people may also want to discuss their taxes with their family law attorney who can explain how accepting different assets in a divorce may have tax consequences at a later date.