What's your status? Are you MFS or MFJ? Tax Tip of the Week
If you were legally married on 12/31/09, the IRS considers you married for the entire year of 2009.
You now must decide if you are going to file as Married Filing Jointly (MFJ) or Married Filing Separately (MFS). Note that if you file MFJ it is an irrevocable election—you cannot go back and amend a MFJ return to a MFS return.The primary reason to file MFS is to pay less tax. This is particularly beneficial for Ohio taxes. Another reason to file separately is to avoid joint liability. Each spouse who signs a joint return is responsible for the accuracy and tax liability on the return.Many times, for example, in a second marriage situation, we see couples who have a desire to maintain separate financial responsibilities. While this is understandable, it could lead to paying several thousand dollars in additional taxes. If you file MFS, you will lose the following:
- Lost credits for child care, education credits, adoption credits and EIC
- Student loan interest deduction, tuition and fees deduction, savings bond interest deduction
- If one spouse itemizes, or takes the standard deduction, the other spouse must do the same. (That is, one cannot itemize and the other take a standard deduction.)
- A greater percentage of your Social Security benefits may be taxable
- Your ability to contribute to traditional or Roth IRA will be greatly limited
- Capital losses will be limited to a maximum of $1,500
- Passive losses will be limited
Before filing your return, you need to look at both MFJ and MFS to see which lowers your tax burden the most.As always, give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.Rick Prewitt - the guy behind TTW...until next week.