Divorce can have a significant impact on the tax status of the divorcing parties. The time of the divorce can determine the taxpayer's bracket and the eligibility for certain credits and deductions, which can impact the amount of income tax paid.
For IRS purposes, if the couple is still legally married on the last day of the tax year, usually December 31, then the couple will still be considered married for that tax year, even if their divorce is finalized before the tax return is filed. If a couple is still legally married on the last day of the tax year, they can choose to file jointly or separately. The benefits of filing separately are that each spouse is only responsible for the tax due on their own income and for the accuracy of information filed on their tax return. The major disadvantages of filing separately are that each taxpayer will likely end up paying a higher tax rate, and it may be more difficult to use certain tax credits, such as the Earned Income Tax Credit and education credits.