Filing Married Separate because of student loans

[Phillybilly]

I have clients that are happy and together with one child and are forced to file separate returns because of student loans.

They both deferred 2500 each for dependent FSA.

Iam taking the child on the wife's return and for the husband I am listing the child with the letter Q.

Iam getting an error message that I have duplicate ss numbers.

Their dependent care costs for the year are over 20K and in my opinion that both should be able to use the 2500 deferral.

Would appreciate your help on what I have inputed in Pro Series.

Many thanks

[Just-Lisa-Now-]

you cant use the same kid for dependent care credit on 2 returns, the one that isnt claiming the kid will have to pick it up as taxable income.

This may be all a moot point, Ive seen that some student loans look at Household income, not just the borrowers income, so splitting them up might not even help.  They should really check into the nuances of the loan to make sure this is worth the hassle.

[IRonMaN]

We have a client that for years has played the MFS routine.  She went back to school to get an online masters degree from one of those colleges that was the equivalent of Trump University.  Spouse makes a decent living but she has never made more than a few bucks in any year since.  To avoid paying the chunk of student loans that she acquired to get her Masters in Useless Professions, she decided to go the MFS route.  As a side note, she also inherited a few bucks from her dearly departed parents.  We pissed that money away and somehow couldn't spare a couple of bucks to go against the student loans.  Not my favorite firm client.

[BobKamman]

This no doubt involves qualifying for the loan "forgiveness" that can be earned by teaching in a ghetto school (definition: few people would want to teach there without some incentive) for 10 years.  They definitely look at the joint income, if a joint return is filed, and only at the separate income, if a separate return is filed.  Well, OK, it's not just teachers, I recently heard about a low-income veterinarian for the Humane Society who qualifies.  

I suspect @Just-Lisa-Now-  is thinking about qualifying for a new loan, not paying off an old one.  And I'm not sure why @IRonMaN doesn't like his client.  Should she accept even less compensation for her low-paying job, just because someone died and left her cash?  Has he ever inherited money himself, and then reduced his fees because his clients were less fortunate?

[Just-Lisa-Now-]

Ive never had a student loan, so I cant speak from experience, I know Ive had clients that told me it didnt matter if they filed separate, that theyd be looking at household income for student loan repayment, so they may as well get the benefits of filing jointly.

[IRonMaN]

@BobKamman - she isn't working at a low paying job.  She has by choice run a couple of small business endeavors that she never cared to really put much time in to make some money.  To the best of my knowledge she has never really tried to find a W-2 job ------ either high paying or low paying.  They live comfortably and she is just trying to avoid paying off the debt that she didn't really need to acquire but liked the sound of having that degree to impress her friends and neighbors.  And I have no trouble with folks that struggle financially to try to get student loan debt reduced.  But I am not a big fan of folks not paying their debts when they have the ability to do so.

And as far as reducing fees, I inherited $10 Million from a long lost relative a couple of years ago.  Ever since then I just charge folks $5 per return just so they don't have to feel like I provide charity work for them.

[TaxGuyBill]

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@Phillybilly wrote:

 are forced to file separate returns because of student loans.

Their dependent care costs for the year are over 20K and in my opinion that both should be able to use the 2500 deferral.

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No, they are NOT "forced" to file separately.  They are CHOOSING to file separately rather than just sucking it up and paying their debt.

If that is your opinion, you are welcome to petition Congress to change the law.

[TaxGuyBill]

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@Just-Lisa-Now- wrote:

This may be all a moot point, Ive seen that some student loans look at Household income, not just the borrowers income, so splitting them up might not even help.  They should really check into the nuances of the loan to make sure this is worth the hassle.

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Maybe there are different programs, or maybe the client filed a Joint loan application?  Generally, MFS allows a lower payment.

https://studentaid.gov/manage-loans/repayment/plans/income-driven/questions#married-borrowers

[BobKamman]

@TaxGuyBill Blind people trying to describe an elephant.  All I see in the question is a working couple with kids who are trying to qualify for loan forgiveness by filing separately.  I have had clients in that situation, working in government or nonprofit jobs for which Congress has said, "put in 10 years and we'll pay off your loans if you keep your income below a certain level."  And Congress, probably not realizing what it was doing, said (or told the bureaucrats to write regulations that said) "we look only at your income, if you file separately, but at your joint income, if you file jointly."  

Other people may be looking to qualify for new loans, or defer paying off old ones, based on other programs and other laws.  But you're right, these (probably) teachers aren't being "forced" to file separately.  They can always file jointly and pay off $50,000 or more in loans that otherwise they have been promised will be forgiven because of the low-paying jobs they weren't "forced" to accept.