Hi Eva,
I rarely do this, but I must humbly disagree with your assessment of Mark's
situation.
Since he lives in one of the nine community property states (AZ, CA, ID,
LA, NV, NM, TX, WA, WI), he'll have a rough time filing separately.
Anything considered community income (e.g., wages, self-employment income,
etc.), or any deductions paid with community income, must be claimed one-half
by Mark and one-half by his wife if they file separately (assuming they live
together).
By the time they pay someone to figure it all out, they might as well file
jointly.
JMHO.
Lucie Sample, EA
San Diego
TaxMama Comments
Hmmm....I re-read my answer.
Lucie isn't the only one who contacted me about why didn't I mention
community property.
They and Lucie are right. For a healthy couple, where the wife just has
a simple office job, it would probably not be worth the money to figure
the taxes separately and together.
However, I repeat, I don't know enough about the couple to suggest they
won't benefit.
Yes, they'll need to split all their income 50-50 in a community property
state.
But the Adjusted Gross Income (AGI) on each person's tax return will
be much lower. So, suppose that brings it down to $40,000 each, taking
the maximum taxable Social Security income into account.
That means that 2% of AGI is only $800 instead of $1600. So if the wife's
job involves lots of out of pocket expenses, or union or association dues,
she'll be able to deduct $800 more than she could have.
Or if they have tax preparation fees, investment fees or subscriptions
or other miscellaneous deductions
And 7% of AGI on $40K is only $2,800 instead of $5,600. So if he has
out of pocket medical insurance, or medical expenses, he'll be able to
start deducting them after only $2,800 instead of $5,600.
And since you may have up to $500 per tax return worth of non-cash contributions
without having attach a separate form and substantiation, the couple as
a whole may deduct an extra $500 without receipts. (Assuming, of course,
that they really did drop those things off at the charity, but didn't go
to an attended facility.)
So if they split the mortgage and property taxes between them, they'd
be able to increase their combined deductions just with the things I've
mentioned, by nearly $4,000.
In California, that's worth about $1,200 in tax savings.
And that's even before either of them run up high medical bills or pay
for long-term care insurance! The savings can only increase.
So, yes, if I were in that position, I'd certainly invest the money to
have a tax advisor review our combined finances for the best tax return
options.
Yes, Lucie is absolutely right - except. And when it comes to taxes...there's
always an except.
Besides, the extra tax preparation fee is deductible to the person who
pays it!
Eva Rosenberg, MBA, EA
