It is very important to select the correct filing status as this will impact the amount of your standard deduction and your tax rate. You may fall into more than one category, so you should choose the one the produces the lowest overall tax. An individual may be single, a surviving spouse, head of the household, married filing jointly, or married filing separately. Filing status is determined on the last day of the tax year.
The basis standard deduction amounts for 2016 are:
Married filing jointly and surviving spouses 12,600
Married filing separately 6,300
Head of Household 9,300
You are considered single for the whole year if on the last day of the tax year, you are unmarried or legally separated under a divorce or separate maintenance agreement. You are considered unmarried if you and your spouse did not live in the same household for the last six months of the tax year. If your home was the main home for a qualifying child or relative and you provided more than half the cost of keeping up your home for the tax year, you are eligible to file as head of household instead of single which provides a higher standard deduction and lower tax rates.
A single taxpayer qualifies as a surviving spouse during the two years following the death of a spouse if the household is maintained for a dependent child and you do not remarry. Tax brackets for surviving spouses are more favorable than filing single.
Married individuals may opt to file jointly or separately even if only one spouse had income. In most situations, it is advantageous to file a joint return due to higher deductions and lower tax rates; however, there are special circumstances where filing separately produces a lower tax bill. It is advisable to calculate your tax both ways and use the filing status that yields the lowest aggregate tax. Considerations other than tax savings should also be considered. If you believe your spouse is not reporting all of his or her income or you do not want to be held responsible for any taxes due because your spouse did not have enough tax withheld or pay enough estimated tax, filing separately may be ideal.
If you are unsure which status applies to your situation, consult your tax advisor.
Brandi Morgan is a CPA and Manager at Wilkins, Miller, Hieronymus LLC, Certified Public Accountants and Advisors. She can be reached at wilkinsmiller.com or 251-410-6700. Her office is located at 41 West Interstate 65 Service Road North, Suite 400, Mobile, Alabama 36608.
Divorce and the Family Business: What happens to the Family Business when you get divorced?
The business you and your spouse co-founded and run together is thriving. Your marriage? That’s another matter. Many people put off filing in situations like this because they fear that it will soon mean the end of the company. It does not have to be that way, especially if your lawyer is sensitive to the fact that the two still need to cooperate and that it will take a quite careful approach in figuring out severing some financial ties, but also having to keep the business alive.
A Census Bureau estimate from 2007 found that nearly 4 million businesses in the U.S. are operated by husband and wife. With a 50% divorce rate, divorce clearly affects a lot of small businesses. Overall, there is no question that it can be a very difficult situation involving two people. Though it may initially seem like a battle, it can work if you work together. Research says that it all depends on the individual couple, but also how the company runs and the skills of your divorce attorneys.
Some things to keep in mind:
Respect each other- this can be hard, especially if the reasons for the split were particularly painful. In some cases, if there isn’t any trust left between the two then there isn’t any respect, and it is probably be best to cut off communication.
Know when to get help- Unlike a lot of separated couples, the ones that operate a business together have to see each other a lot, even after the divorce is finalized.
Create agreement-This is a very important legal step that many couples haven’t though out when they found the business together. The agreement explains what will occur in the event someone wants to sell.
Sit down and discuss the situation with your employees- They will know what is happening, and what you don’t want to happen is for them to choose whose side to be on. Choosing sides can always slow the process down so its always in each party’s best interest to try to get along.
To many people who are experiencing the trials of divorce, it can sometimes feel like a full-time job. It can consume all aspects of your life. Between phone calls with your attorney, to contact with your ex-partner, to figuring out child custody and where to live, it can consume all aspects of your life. And regardless of how affluent the couple may be, there is often stress about your financial future.
A lot of times after two people have separated or divorced, someone has to start from scratch. While some degree of worry and apprehension is to be expected, these fears can be eliminated by a little work and planning on your part. This planning can help you feel confident and secure while you establishing your new life.
1. Fear of not getting a fair share.
Many people worry when they begin the process of divorce that they may not end up with their fair share of the finances. If your finances are simple, it can be easy to evenly divide your assets. But many times other items are involved that make things more complex. Things items can range from anything to multiple homes to closely held businesses and non-liquid investments. First, determine exactly what you own and how much it is worth. Next, establish a fair value for each asset. When doing this, be cautious that some things may be prone to subjectivity and manipulation in the divorce context.
Appraisals of real estate of other valuables such as jewelry or art may be advisable.
2. Fear of not knowing what you will have.
Fear of not knowing what you will have is a justified fear that many have when entering a divorce. When dealing with a divorce, it is easy to get lost in the details and lose sight of the bigger picture. It is crucial to stay focused on what your finances are going to look like post-divorce. Not only should you know how much you have, but you need to know exactly what and where you have it. One tip to help with this fear is to meet with a financial adviser before the divorce is finalized, that way you can make sure that not only are you getting your fair share, but that you don’t get stuck with non-liquid assets while the other party gets the cash.
3. Fear of not knowing how your lifestyle will change.
This fear stems from your cash flow. How much will you have left? Many people worry that after alimony, child support, income and basic living expenses there will not be enough money left over to keep living the same day-to-day lifestyles they had before the divorce. To squash this fear, have your financial adviser create a post-divorce income and expense report for you. If you do not have a financial adviser, you can look at your recent spending history to determine what your anticipated monthly expenses will be. By doing this, you will be able to see how your new finances will affect your lifestyle.
When you experience a divorce, it is common to go through a wide range of emotions. For a spouse who isn’t financially savvy, fears and uncertainties are after a common experience. However, if you plan ahead and have a little help, you will be able to feel at ease about your financial situation and can focus on other aspects of the separation.
As we all know, one of the biggest issues in a divorce is the family home. It all starts to get messy when the decisions of what will happen to it and who is going to live in it become a concern for the parties. Typically, parties go from having two incomes to contribute to the mortgage and other household expenses during the marriage to having only one income to contribute to those expenses after the divorce.
Below are important questions people need to ask themselves when they aren’t sure if they should keep their home when going through a divorce.
1.Is your marital home a great fit for your new lifestyle?
2.What is your house worth today?
3.What would be the cost to keep the house up?
4.Are you willing to sacrifice financially in other areas to keep the house?
5.Is there any equity in the house or are we “upside down?”
6.If there is equity, can I afford to buy my spouse out?
7.Do I have the income and credit to refinance if the Court so orders?
8.Would it benefit me/us more financially to sell the house?
Having to choose whether or not to keep your residence could possibly be one of the most difficult decisions you will have to make during divorce, as there are likely many good and bad memories associated with your marital home. Its always wise to give yourself time to think it all through very carefully. Everyone needs to be able to manage their assets and develop a plan for financial stability and security in the future.