Your marital status on December 31 determines your filing status for the entire preceding year. If you are still married on December 31, you have a choice. You can file jointly with your soon-to-be ex-spouse or file using married filing separately status. You might qualify to file as Head of Household even though you are still married if you have been living apart for the last 6 months of the year.
Unfortunately, using married filing separately status is not very favorable from a tax viewpoint. A joint return usually results in a lower overall tax liability.
If you file a joint return, as far as the IRS is concerned, both you and your spouse are liable for the whole amount of tax due regardless of what any agreement between the spouses states and regardless of who earned the money. This can obviously be a problem. For example, if your self-employed husband has not paid his taxes and you file a joint return with him, the IRS can collect 100% of the tax from you. It does not matter what you have agreed with him, or whether or not you earned the money – filing a joint return produces joint liability. If you are concerned that your spouse might have unreported income or be claiming improper deductions, your best route may be to forego any joint tax return savings and file separately.
There is an exception to joint liability if you can prove you were an "innocent spouse." Let’s say your husband failed to report some of his income. If you didn’t know and had no reason to know about a tax understatement, then you may not be liable. If you know that he is not reporting accurately and you sign the joint return, you are liable.
If your return shows a refund but you owe arrearages in child or spousal support payments, or student loans, all or part of your refund may be used to pay the past-due amount. If you file a joint return and your spouse owes some of these debts, you can prevent your share of a tax refund on a joint return from being applied to a debt owed by your spouse by attaching a completed Form 8379, "Injured Spouse Claim and Allocation", to your return. Also, write "Injured Spouse" in the upper left corner of Form 1040.
If you choose to file separate returns, each spouse reports his or her own income, exemptions, deductions and credits. You each report your own withholding tax from W-2’s. If you and your spouse made estimated tax payments, they may be divided in whatever way you and your spouse agree. If there is no agreement, the IRS will divide them proportionately based on your two respective tax liabilities. If you paid the estimates, some may be credited to your spouse.
The advantage of filing separately is that each spouse is responsible only for the tax due shown on his or her own return. Unfortunately, separate returns often result in overall higher taxes for the couple. If one of you itemizes deductions, the other spouse will not qualify for the standard deduction and, therefore, must also itemize deductions on his/her tax return. If you file separately, you cannot take the credit for child and dependent care expenses, and IRA deductions are reduced.
If you agree to file jointly in order to save overall taxes, you and your spouse can execute an agreement on how to share any tax savings generated by filing a joint return.
If you file separately, you can change your mind, go back and amend to joint returns any time within 3 years of the due date. You cannot go the other way. If you file jointly, you cannot amend to file a separate return.