Family Law Software Menu

Software Help

The links below correspond to screens in the software.

← Back to Software Help

Best Filing Status

Negotiate > Best Filing Status

This screen shows you the best filing status the parties could choose for Federal Income Tax purposes.

For filing status purposes, what usually matters is whether the parties are married at the end of the calendar year.

If the parties are married at the end of the calendar year, they may file a joint return, even if they are living separately.

They may also file as married filing separately.

So, in cases where the date is drawing near the end of the year, the question whether to complete the divorce by the end of the year may turn on the tax aspect.

The parties may wish to let the tax aspects drive the decision, especially if there are no other significant factors.

By being able to tell the parties which filing status is best, you can add significant value to help the parties minimize their combined taxes.

Decisions to Make

There are actually two filing status decisions:

1. Before the divorce, the parties have to decide whether the parties should file jointly or file separate returns in their final year together. There may also be the option to have one or both parties file as head of household, even if they are still legally married.

2. There may also be a decision whether to complete the divorce in the current calendar year and file as single individuals, or whether to stay married until the beginning of the next calendar year.

The text at the top of the screen gives the answer to each of these questions.

The software reaches its conclusion by running many different scenarios and comparing the results.

Before the Divorce

Looking at the parties’ last year together, the software first compares the total tax if the parties are married filing jointly with the total tax if the parties choose a filing status of married filing separately.

Then, the software sees whether either party could claim the head of household filing status.

It is typically possible for a party to claim the head of household filing status the parties are living separately for the last half of the year and the party supports a child, even if the parties have not yet completed the divorce.

The software will then choose the best option among all of these.

The software will also show you the dollar amount in taxes that could be saved, compared with the alternatives.

Note that the software is concerned with the combined tax savings.

What if this savings accrues only to one party?

In that case, the party that is saving may wish to make a payment to the other party of a portion of the savings, to equalize the savings between them.

When to Divorce

The next question is whether the parties are better off staying married at the end of the current calendar year.

To do this calculation, the software looks at scenario with the lowest combined tax cost if the parties are married, and compares that with the scenario with the lowest combined tax cost if the parties are divorced.

Negative Taxes

You may in some situations see negative federal income tax.

This will occur if credits such as the earned income credit or child tax credit are more than the amount of tax due.

This frequently happens in situations in which there are children and the party’s income is $40,000 or less.

The more children a party is claiming as exemptions, the more likely this is to happen.

Individual

In the middle of the screen, there is a link labeled “Individual.”

If you click this link, you will see what the tax will be under each possible filing status for each individual.

For the joint filing status, what is shown is that party’s share of tax, which is calculated proportional to the party’s joint income.

Explanation

In the middle of the screen on the right, there is a link labeled “Explanation.”

This screen shows in detail all of the calculations that were performed by the software.

This is useful to help understand the calculations, and also if a client or judge questions the calculations.