How do I file my 2006 taxes knowing I'm getting divorced?

Question

We have yet to file our 2006 taxes, but I know I'm getting divorced. So the question is about our refund and the 1099-G for 2007 taxes (i.e. taxes I owe in 2008). We've only been married 10 months, so we've never filed married before. The house is still in my name and I've been making all the mortgage payments (all the bills actually), so the interest deduction is "mine", which is the lion share of the refund. So if I file "married joint" and am kind and give her half of the refund, what happens for my tax liability for 2007? Do I alone get the 1099-G for $7,500 in tax refund and owe (in 2008) in taxes nearly everything I got for dividing the refund? Assume I can't hit her up next year for some money to cover the taxes on the refund. Should I ask her to file "Married/Separate" or "Individual"? We may lose a little total, but I don't want to get saddled with the tax burden of the whole refund if I give her half.

Thanks in anticipation!

...We have over $1,400 in state refund coming...we will get a 1099-G for that. The responder is right...I looked through the stack for 2006 taxes and there are no 1099-G's for federal taxes, just state...

Answer 1

Your circumstances trump minor tax considerations. I recommend filing married filing separate. It seems that you as an individual may come out ahead, since you have the mortgage interest deduction.

Your spouse would also have to itemize. I don't know the advantages/disadvantages to her, but for you, MFS would be my advice. You won't have to share the refunds, future taxes on state refunds, or tax liabilities of the other spouse.

Answer 2

Since you were married at the end of 2006 you have two filing choices: Married Filing Joint or Married Filing Separately.

If you are filing with tax software it is simple to compute your taxes both ways to find out which is most advantageous.

The tax program will also enable you to project next year's taxes with and without the 1099-G STATE refund. (Note that federal tax refunds do not affect your amount of tax owed.)

Then, if you 1) agree to split the refund, and 2) agree to split the affect of the refund on 2007 tax due: Agree to give her her half of the refund minus one-half of the effect of the refund on your 2007 tax return

Without knowing the relative 2006 earnings each of you had in 2006 it's difficult to say whether filing MFJ or MFS is better money-wise, but to avoid all of the splitting and uncertainty you would avoid any problem by filing Married Filing Separately for 2006.

Whatever you decide, put it in a form of a dated memorandum signed by both of you. You might need it during the divorce procedure. People do change their minds after talking to a divorce attorney!

Answer 3

1. You won't get a 1099-G for Federal tax refunds. Federal taxes are not deductible and the refunds are not taxable. The poster above me doesn't know what they're talking about.

2. Your 2006 filing status is based upon your marital status on 12/31/2006. Filing a joint return will cost the least in tax. You should split the refund with your spouse. If you file separate returns you'll pay higher taxes but can keep all of your refund -- if there is one.

3. There is no such filing status as "Individual".

Answer 4

You will only need to report 50% of the tax refund that you receive on a joint tax return.

If the IRS sends you a letter, call up the number on the letter or write to them and state the facts. You are no longer married and the refund was split between the two of you. The case will be closed.

If you do not trust your spouse than you should always file separately and claim all the deductions that you can and you do not need to worry about her.