I need to be Educated

[rcooley25]

In my 54 years of tax preparation I have not seen one case where I could save people money on their  income tax returns by using married filing separately. How ever in response to an earlier post that I made it is my understanding that some of you have been able to save clients money by using  MFS. Under what circumstances were your clients under that my clients were not that you were able to save them money this way because I am simply dumfounded how this can work and under what circumstances.

[dascpa]

I'd say one or two every year.  In my case it's where we still itemize but due to the 7.5% haircut on medical by filing separately we can deduct whereas by filing jointly we cannot.  I check every return knowing that the ProSeries calculation is iffy at best.  If it comes up a yes then I split the return to verify.  I've had others but didn't write down why.

[sjrcpa]

High medical expenses for one spouse.

In the days when Misc Itemized deductions were allowed, when one spouse had a lot.

In CA, high income couples may pay less or no millionaire's tax.

When having to pay back APTC MFS may give a better result.

[IRonMaN · Accepted solution]

@rcooley25 , it isn't often that it happens.  Dascpa mentions one instance.  Another potential is with higher income folks with similar incomes.  Unusual tax laws sometimes come to call like in the cases of the unemployment exclusion a couple of years back and once in a while with the health insurance premium credit.  Probably in those 54 years you maybe missed out on one or two returns where you could have saved your clients two dollars so I wouldn't lose a lot of sleep over it.

[IRonMaN]

Oh and I forgot - when all else fails - drink more Fireball.

[Jim-from-Ohio]

In Ohio the savings is on the state side when it makes more sense. 

[Jim-from-Ohio]

client brought out three sets of returns with them.. I had a half hour budgeted for the main set of returns but did not know about the other two sets of returns and thought oh no.. this will take more than a half hour.. especially when i saw both husband and wife made about the same amount, a prime case for filing separate for the savings on the Ohio side.. then i saw the diamond, a 1098-T and I knew I could go joint, saving the time in splitting the returns into two sets as the education credit on a joint return was more than the savings they would have seen on the ohio side.. got all three sets done, in about 35 - 40 minutes so it did not me put me too far behind. 

[taxiowa]

Last year we used MFS alot because of unique Covid rules and situations.  That saved thousands of dollars in most cases.  I used to do it for couples where one had high income and the other just average income.  Child tax credit limit used to be alot lower so you could gain quite a bit by lower income spouse claiming kids.  Now limit jumped up to $400,000 so it not so popular.

Like Ohio, in Iowa we file 85% of clients separate on Iowa return even if joint on federal.

[Jim-from-Ohio]

In Ohio they make you file the same status as the status on the federal return. 

[C-VA]

I had a return this week that the couple saved about $800 due to the Premium Tax Credit. Surprised me too. 

[BobKamman]

I pay more attention now to how close the spouses are to the line where Medicare premiums increase by at least 50%.  If one spouse has income of $120,000, the other $90,000, a joint return is going to raise premiums for both of them.  Separate returns might not save any tax, but is it worth saving $1,000 or so in deductions from the Social Security check?  

Others covered the common situations.  The 7.5% limit on medical might work for one but not the other.  The 2% on miscellaneous, before it went away for a while so corporations could pay less tax.  The unemployment exclusion, where the income amount was the same for separate or joint.  The California millionaire tax, and whatever they do in Rust Belt Ohio.

Mentioned in another thread was the idiotic rule on cancellation of student debt when a public-service employee works like an indentured servant for a certain number of years.  Many must choose between claiming a child tax credit, or eventual loan cancellation. 

But MFJ should not be a knee-jerk reaction, especially when it's apparent that the couple will owe taxes and won't have the money to pay it.  A lot of innocent-spouse cases could have been avoided, by smart preparers. 

[rcooley25]

I trust that you itemized deductions on both taxpayers tax returns.

[rcooley25]

That is the best answer to my problem that I have received.

[rcooley25]

You are lucky. I had that same situation this last week regarding premium tax credit and MFS did not work at all.

[taxiowa]

@Jim-from-Ohio That would be worse.  We file most joint federal and separate Iowa and can mix and match as we choose.  Program is not accurate so we have to do our own choosing alot of the time.