I had a woman in my office for a tax prep consultation a few weeks ago. She had a fairly interesting situation, well interesting if you’re an accountant anyway. I explained the situation to her and how it should be handled. She left and discussed things with a family member. He told her that I was wrong. His reasoning was very straight forward and based entirely on common sense. Unfortunately, when your dealing with the Internal Revenue Code, common sense doesn’t always play a role.
There are lots of very valid reasons why you may want to file your taxes separately from your spouse. I’ve probably heard most of them at this point. Some of the most common are married couples that simply want to keep their finances separate. One spouse may have a delinquent debt and the IRS now takes their refund. Another common reason is that one just started a business and they don’t want their taxes to effect their spouse’s refund. These are all very valid reasons as to why you would want to file separately from your spouse. Unfortunately, in all of these situations you’re still usually better off filing jointly.
Married Filing Separate (MFS) is the worst filing status you can use. the IRS basically punishes you for using it. There is a long list of deductions and credits that you’re no longer eligible for if you choose to do MFS. I ran through the numbers for a client of mine last month. Had they filed separately they would have gotten over $1,700 less in their refund. Its bad to the point where I’ve seen, soon to be divorced, couples that generally can’t stand to be in the same room together still come together to file their taxes.
Now you may be thinking, does it matter if my portion of the refund is higher if the IRS is just going to grab it all because of my spouse? Good question! There are two ways of looking at this. First ,there is the fact that this debt isn’t going to go away until the IRS gets all their money. The larger the refund they take the faster it gets paid off and things go back to normal. While that’s all well and good, maybe you still want to get a refund. There are ways to still file jointly and get your portion of the refund. Depending on the circumstances you maybe eligible to file under injured or innocent spouse relief. If you qualify then you still get your portion of the refund but, without the penalties of filing separately.
If you have any questions about what the right status for you is, or anything else, feel free to comment below or email at Joe@VectorTax.com.
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