THE CASE OF THE “UNDONE KNOT”

Ole left Lena and their two children in May of 2008. Lena lives with the two children in the rented family home. Their divorce is pending. Ole earns $40,000 per year and pays temporary child support of $1,200 per month and is entitled to have the children as dependents if they don’t file a joint tax return. Lena earned $10,000 last year working part time when the kids were in school. Ole’s accountant says they should file joint as it would be better for the both of them. Lena comes to talk to us before she decides.

She has three choices: 1. Married filing separate; 2. Married filing jointly; and 3. Head of household. We throw out choice number one as that is the worst of all possible choices. So we did an analysis of their other two choices and what that would mean for them individually, without considering any withholdings.

If they filed married joint they would share a tax bill of $2845. If Lena decides to file as head of household, which she has the right to do, she will have a refund of $5,000. If she makes that choice, Ole has to file as single and he will have a tax bill of $2765.

What would you do if you were Lena?

Lena thinks Uncle Sam is neat.