What is the appropriate way to file taxes if I am in the middle of a divorce. We have lived separate for 5 months and have a 5 year old?

[xmasbaby0]

If you were still legally married at the end of 2021 your filing choices are married filing jointly or married filing separately.   If you lived apart for at least SIX months of 2021 and you are the custodial parent of the child you may be able to file as Head of Household.

Am I Head of Household?

https://ttlc.intuit.com/questions/1894553-do-i-qualify-for-head-of-household

https://ttlc.intuit.com/questions/2900097-what-is-a-qualifying-person-for-head-of-household

If you qualify as Head of Household, when you enter your filing status (single or married filing separately) into MyInfo, and then enter your qualifying dependent, TurboTax will offer HOH as your filing status.

If you were legally married at the end of 2021 your filing choices are married filing jointly or married filing separately.

Married Filing Jointly is usually better, even if one spouse had little or no income. When you file a joint return, you and your spouse will get the married filing jointly standard deduction of $25,100 (+$1350 for each spouse 65 or older)  You are eligible for more credits including education credits, earned income credit, child and dependent care credit, and a larger income limit to receive the child tax credit. 

If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. Your tax rate will be higher than on a joint return. Some of the special rules for filing separately include: you cannot get earned income credit, education credits, adoption credits, or deductions for student loan interest. A higher percent of your Social Security benefits may be taxable. Your limit for SALT (state and local taxes and sales tax) will be only $5000 per spouse. In many cases you will not be able to take the child and dependent care credit. The amount you can contribute to a retirement account will be affected. If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. ( Community property states:  AZ, CA, ID, LA, NV, NM, TX, WA, WI)

 If  you are using online TurboTax to prepare your returns, you will need to prepare two separate returns and pay twice.

https://ttlc.intuit.com/questions/1894449-married-filing-jointly-vs-married-filing-separately

https://ttlc.intuit.com/questions/1901162-married-filing-separately-in-community-property-states

https://ttlc.intuit.com/questions/1894449-is-it-better-for-a-married-couple-to-file-jointly-or-separ...

[Critter-3]

For future negotiations with the other parent  the following info may be of use: 

 There is a special rule in the case of divorced & separated (including never married) parents. When the non-custodial parent is claiming the child as a dependent/exemption/child tax credit; the custodial parent** is still allowed to claim the same child for Earned Income Credit, Head of Household filing status, and day care credit. This "splitting of the child" is not available to parents who lived together at any time during the last 6 months of the year; then only one of you can claim the child for any tax reasons. The tax benefits may not be split in any other manner. 

Note in particular that the non-custodial parent can never claim the Earned Income Credit, Head of Household filing status or the day care credit, based on that child, even when the custodial parent has released the exemption to him.

 So, it's good idea to let the other parent know that you will be claiming those items, as many first time divorced parents are not aware of this rule and may try to claim those items, which will cause the IRS to send out letters.

Ref: https://www.irs.gov/publications/p17#en_US_2017_publink1000170897

Scroll down to "Children of divorced or separated parents (or parents who live apart)"

** The IRS goes by physical custody, not legal custody, for who is the custodial parent.  Furthermore, for tax purposes, there is no such thing as joint custody, regardless of what your legal agreement says. The requirement, to be custodial parent, is that the child live with you MORE than 50% of the time. One of you has to be the custodial parent and the other the non-custodial parent. The IRS goes by physical custody, not legal custody. 

[Opus 17]

Based on your information, you don’t qualify to file as head of household. Filing a joint tax return will usually result in the lowest tax and largest refund; however, you must agree in advance how you will divide your tax refund and you must trust each other. When you sign a joint tax return, you are taking equal and joint liability for all the facts stated on that return and for any facts that are omitted.  If you decide to file jointly, there is a form you can use to split your tax refund between two different direct deposit bank accounts, so you don’t have to worry about getting paid by the other spouse. But you do have to be aware of the joint liability you agree to when you signed a joint return.

If you decide to file as married filing separately, only one of you may claim the child as a dependent. Both of you qualify to claim the child as a dependent because you lived together for at least six months before separating. If you can’t agree on which parent will claim the child as a dependent, the IRS tiebreaker goes to the parent who had physical custody in their home the most nights of the year.

finally, we have to consider any advance child tax credit payments that you might have received. The IRS will be sending you a letter that shows how the advance payments were allocated. For example, if you received the full amount of $300 per month for six months, or $1800, the IRS might have allocated all $1800 to one parent, or it might have allocated $900 to each parent.  Whatever is allocated to each parent is what that parent must report on their tax return.  If one of the parents has an advance child tax credit amount allocated to them but does not claim the child as a dependent, they will have to repay the advanced credit (unless they are low enough income to qualify for repayment protection).  You must report the advanced child tax credit payments according to how the IRS allocated them, regardless of who actually received the money or spent the money. If you believe that this results in an unfair distribution of funds, this is something that you will have to take into account in your final settlement of assets as part of your divorce.