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January 18, 2019

When Should Married Couples File Separately?

Wedding-cake

    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys help individuals analyze their options when it comes to their tax-filing status. For example, when filing their taxes, married couples have the option to either file jointly or separately, and must weigh the pros and cons of each. While most married couples file their returns jointly, there are instances when filing separately may be advantageous based on the taxpayer’s situation.

Joint and Several Liability

    For starters, taxpayers who file joint tax returns are jointly and severally liable for liabilities arising from mistakes or omissions on that joint return. Imposition of joint and several liability means that each taxpayer is legally responsible for the entire liability—unless the taxpayer qualifies for innocent spouse relief. This means that the IRS can proceed against either spouse—or both—to resolve the tax liability. IRC §6013(d)(3). For this reason, a taxpayer may want to consider filing separately if they have an untrustworthy spouse or suspect that their spouse is not complying with their tax obligations. A spouse should also consider filing separately if one or both spouses own a business—and that business is a pass-through entity—and the spouses is not involved in the day-to-day activities of the business. We say this because if a business owner spouse is not paying or properly reporting the business’s tax liability to the government, the innocent spouse may also be liable, since the entity’s profit and loss would be reported on the couple’s income tax return.

Nardone Limited Comment: Taxpayers should be aware that qualifying for innocent spouse relief is very time consuming and difficult to achieve. Generally, it is tough for the petitioning spouse to prove that they did not know or have reason to know of the tax deficiency, since they did in fact sign the income tax return. For more information on innocent spouse relief, see our previous blog, “Tax Relief for Innocent Spouses.”

Additional Considerations

    A spouse may also choose to file separately if at least one spouse has significant itemized deductions that are limited to adjusted gross income (“AGI”), or one or both spouses qualify for head of household status because the couple is living apart or separated. Common itemized deductions limited by AGI are medical expenses, personal casualty losses, miscellaneous itemized expenses, and charitable contributions. Taxpayers should also be advised that, to qualify for head of household status: (i) you and your spouse cannot have lived together during the last six months of the year; (ii) the spouse’s home must have been at least one of the children’s primary residence for more than half of the year; and (iii) the spouse filing for head of household status must have paid more than half the cost of keeping up the home for the year. IRS Pub. 501 (2018).

    In sum, before a taxpayer decides to file a joint return or a married filing separate return, the taxpayer should work with their tax return preparer or attorney to better understand the intended and unintended consequences of that filing. If a married couple’s goal is to simply limit their tax liability, it may be helpful to prepare the tax return both ways. That way, the couple can see which filing status would give them the biggest tax savings.

Contact Nardone Limited

    The tax attorneys at Nardone Limited have experience in advising taxpayers when it comes to deciding how to file their taxes, as well as preparing requests for innocent spouse relief. If you are married and are unsure whether you should file your taxes jointly or separately, then you should contact one of our experienced attorneys. We will thoroughly review your case and determine the most advantageous option based on your specific circumstances.

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« Tax Cuts and Jobs Act-Impact on Charitable Giving | Main | Section 199A: The New Tax Break for Small Business »

January 18, 2019

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