Asheville Ways of Filing

One of the first decisions a taxpayer has to make when preparing his or her taxes is one of filing status.  Do you know which one you should be?  If you have a child, should you file single or head of household?  Please read on to answer these questions.

There are five filing statuses:

*Single

*Married filing jointly(MFJ)

*Married filing separately(MFS)

* Head of household(HOH)

*Qualifying widow(er)

Single:

A taxpayer is single if unmarried or separated from a spouse, either by divorce or a separate maintenance decree, on December 31.  A widow(er) whose spouse died before 2010 is single unless he meets the tests for qualifying widow(er).

Married Filing Jointly:

Taxpayers may file jointly if on the last day of the year they are:

*Married and living together,

*Married and living apart, but not legally separated or divorced,

*Separated under an interlocutory (not final) divorce decree, or

*Living in a common-law marriage, if common-law marriage is recognized in the state where they currently reside or in the state where the marriage began.

If one spouse died in 2010, the survivor can file jointly with the decedent if the couple met one of the above tests on the date of death and the survivor did not remarry in 2010. 

Same-sex couples cannot file joint returns.Only married couples can file jointly.  Same-sex couples cannot be considered married for federal tax purposes even if state law sanctions such marriages.

Married Filing Separately:

Taxpayer married at year end can elect to file separately.

Disadvantages of Married Filing Separately:

Lost Credits:

*Earned income credit

*Credit for the elderly or the disabled unless spouses lived apart  for the entire year.

*Child care credit unless spouses lived apart for last six months of the year.

*Adoption credit unless spouses lived apart for last six months of the year.

*Education credits.

Lost Education Benefits:

*Student loan interest deduction.

*Tuition and fees deduction.

*Savings bond interest exclusion.

Standard Deduction:

If one spouse itemizes deductions, the other must also itemize(that is, cannot claim the standard deduction).

Taxable Social Security:

A greater percentage of Social Security benefits may be taxable unless the spouses lived apart for the entire year.

IRAs:

*Traditonal IRA  deduction and Roth IRA contributions phased out at $10,000 of modified AGI unless the spouses lived apart for the entire year.

*Spouses IRA rules do not apply.

Capital Losses:

*Net capital loss deduction is limited to $1,500 per spouse.

Sale of Home:

*Gain exclusion is limited to $250,000 per spouse.

Passive losses:

*Rental real estate loss allowance is limited to $12,500 per spouse, with lower phase-out thresholds.

*One Spouse’s passive loss cannot be offset by the other spouse’s passive income.

AMT Exemption:

In addition to the exemption phasing out, some high income taxpayers must add an amount back to AMTI.

Reasons to file separately:

*No joint liability.  Each spouse who signs a joint return is responsible for the accuracy of the return as well as the payment of the tax.  A spouse who files separately is not responsible for reporting or paying tax on items attributable to the other spouse.

*Some couples pay less tax filing separately.  Tax brackets and standard deduction for MFS are one-half of those for MFJ.  Spouses with equal incomes will generally owe the same tax under either filing status unless one spouse had medical expenses, casualty losses or employee business expenses subject to a percentage limitation based on AGI.  A couple in this situation may pay less tax by filing separately because these expenses are limited by the AGI of only one spouse. If one spouse has significantly higher income than the other, the couple will generally pay less tax filing jointly.

IRS CIRCULAR 230 DISCLOSURE:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.