With the personal deadline passing I find a majority of people have questions on why their filing status matters. We have found that Married Filing Separately (MFS) is one of the most misunderstood filing statuses. There are many legal and personal reasons why you might choose to file separately. However, the IRS prefers you to file Married Filing Joint (MFJ) and shows preference to this by allowing certain credits only when MFJ. These include the Earned Income Credit, education credits (AOC and LLC), full child credit, dependent care credit, and the adoption credit (on the year adoption took place). They also allow MFS to amend to MFJ within the allowed amendment period. But if you filed MFJ and afterwards decided to amend to MFS, if it is past the April deadline it is not allowed.
An important fact to keep in mind when deciding to file MFS is whether to itemize or use the standard deduction. You must use the same method regardless if it is not beneficial for both you and your spouse. An example is this:
Married couple decides to file separately and chooses to itemize. Let’s see how this filing choice affects the couple. The home is in the husband’s name, he has most of the state taxes taken out of his paycheck, he tithes to his church, and donates regularly to charity throughout the year. She runs a business sole owner (Schedule C), she doesn’t pay quarterly estimates and no property is in her name.
The result is the husband will have the mortgage interest, mortgage insurance premiums (depending on income), the state taxes, and all his donations. This results in his deduction several thousand dollars higher than the standard of $6, 350. Which leads to a $200 dollar decrease in taxes if they filed jointly.
For the wife the result doesn’t fare so well. They didn’t realize they had to use the same method and her itemized totals are less than $500. This results in a loss of $5,850 or more below the standard deduction. The consequences from this will create higher taxes due for the wife. This is cause in part by removing some of the credits I mentioned above, and the consequence of the lower deduction amount allowed.
If you’re unsure of if it is best for you and your spouse to file Married Filing Joint or Married Filing Separately, Polston Tax can help! No two tax situations are the same and we can help you figure out which ones work best for your financial situation. Call us today at 844-841-9857 or click below to schedule your free consultation!