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  #1  
Old 02-10-2013, 01:42 PM
doubled doubled is offline
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Why do taxes have "Married filing separately"?

As far as I can tell, "Married filing separately" means you have to pay more taxes than either "single" or "married filing jointly". I'm sure there's someone somewhere who would be better off using "married filing separately" but it seems to hurt the vast majority of filers.
Now I realize the tax code doesn't necessarily make sense, but seems to me the logical way of doing things would be to simply have two tax statuses "Filing as Married" or "Filing as Individual" (IE, either single people or else married people who chose to file separately). I don't understand why there's any reason to have a third "Married but filing separately" status with its own rules (that seem to work against almost everyone)

Is there any sort of logical reason for the tax code to have "married filing separately" with its own rules, instead of simply letting married people use the "single" rules?
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  #2  
Old 02-10-2013, 01:48 PM
hajario hajario is offline
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Couples who are estranged but still legally married use this.

There are rare cases where it does save money to do this. One example is where one of the two spouses has a large amount of deductibles subject to a floor (like medical or reimbursed business expenses) and not such a high income. With a combined income they could lose most of those write-offs.

Last edited by hajario; 02-10-2013 at 01:48 PM..
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  #3  
Old 02-10-2013, 01:51 PM
doubled doubled is offline
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Quote:
Originally Posted by hajario View Post
Couples who are estranged but still legally married use this.

There are rare cases where it does save money to do this. One example is where one of the two spouses has a large amount of deductibles subject to a floor (like medical or reimbursed business expenses) and not such a high income. With a combined income they could lose most of those write-offs.
Yeah, OK, but all of that could be attained by just having the tax system allow married people to file as individuals (using the "single" rules) if they want. Is there any logical reason congress set up the tax laws with a third "married filing separately" set of rules instead of just allowing married people to use the single rules if they want?
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Old 02-10-2013, 01:51 PM
hajario hajario is offline
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I just realized that I didn't read the question very well.

A better answer to the actual OP is that the gov't doesn't want to encourage married couples to file two tax forms because it makes twice as much work for the IRS so they use the tax code such that people aren't likely to do it.
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Old 02-10-2013, 02:00 PM
Shayna Shayna is offline
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Because some rich guy lobbied Congress some time in the past and said, "I don't want to file jointly with my wife because she makes bupkis and if we file separately we can pay fewer taxes," and his bought-and-paid-for Congresscritter revised the tax code to benefit him.

That's how it always works.

As to how it's beneficial, you have to live in one of the 41 states that are not "community property" states where your income is considered 50/50 for each spouse. Then you have to look at whether one spouse makes a significant share of the family income and the other very little. And then you have to look at which spouse can qualify to take more deductions, thereby reducing their tax liability the most.

In some cases it is financially beneficial to file separately. In some cases it is not. But there are many considerations and pitfalls if you file separately, like not being able to take the child care tax credit or make a Roth IRA contribution if your AGI exceeds $10,000 for example.

Basically, it's a gimmick for a certain segment of the population to take advantage of to lower their responsibility to pay taxes, just like all other tax schemes out there.
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Old 02-10-2013, 02:12 PM
doubled doubled is offline
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Originally Posted by Shayna View Post
Because some rich guy lobbied Congress some time in the past and said, "I don't want to file jointly with my wife because she makes bupkis and if we file separately we can pay fewer taxes," and his bought-and-paid-for Congresscritter revised the tax code to benefit him.
No, that's my point -- the rich guy who lobbied congress would have still gotten that same benefit if he'd just lobbied them to allow married people to file using the "single" rules if they choose. Plus, that has the benefit of being simpler, and more intuitive than introducing a third "married, filing separatly".
So why didn't the rich guy lobby for "filing as single (even though I'm married)" status?
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Old 02-10-2013, 03:59 PM
doreen doreen is offline
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No, that's my point -- the rich guy who lobbied congress would have still gotten that same benefit if he'd just lobbied them to allow married people to file using the "single" rules if they choose. Plus, that has the benefit of being simpler, and more intuitive than introducing a third "married, filing separatly".
So why didn't the rich guy lobby for "filing as single (even though I'm married)" status?
They may have lobbied for it, but didn't get it. One of the differences between "married filing separately" and each person filing as "single" is in the itemized deduction/standard deduction.

Married filing separately may in certain circumstances provide for a lower total tax bill by allowing one spouse to use certain deductions that are subject to a floor. But married couples are still treated as a single unit in that a couple filing separately must either both take the standard deduction or both itemize. You can't have the person with $10,000 in deductions itemize and the one with no deductions take the standard deduction. Allowing each to file as single would allow one to itemize while the other took the standard deduction ,allow one to take the child care tax credit and other credits not currently available to those filing separately and often allow them to avoid the phase-out of some of those credits as income rises. The short version is it would decrease revenue (probably greatly, because many married couples would benefit by one person taking all the itemized deductions if the other person could still take the standard deduction) and sometimes in ways that aren't obvious. Do we really want the spouse of someone making $500,000/yr qualifying for the earned income credit because his/her only earned income is $12,000/yr for sitting on some board and they each filed as single?
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  #8  
Old 02-10-2013, 04:25 PM
Chronos Chronos is offline
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You can't have the person with $10,000 in deductions itemize and the one with no deductions take the standard deduction.
Hm, good point. Another effect of this would be that couples would put all of their charitable giving, etc., in one spouse's name, while the other (who would otherwise take no deductions at all) takes the standard deduction.
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Old 02-10-2013, 07:25 PM
dracoi dracoi is offline
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This is BS. If we're going to bandy about apocryphal stories about rich guys lobbying Congress, then we might as well give up and go home.

Married Filing Separate serves a real need. It isn't a common need, but the need exists. There are three uses that I see:
1) to limit each spouse's liability for taxes. Remember, a joint return makes you jointly and severally liable for the tax due - including tax assessed under audit. Imagine that you're the trophy wife of Mr. Moneybags, who cheats like crazy on his taxes. You divorce him and two years later, you are notified that a joint return is being audited. The IRS assess $2 million assessment. It turns out he's bankrupt and has no assets, so the IRS takes everything you have. Filing MFS prevents this.
2) to limit each souse's liability for other debts. The IRS will withhold refunds to pay liabilities like back child support, student loans or other taxes. To avoid having your tax refund taken to pay the spouse's liability, you file MFS.
3) to limit tax. Every once in a while, by accident really, MFS produces a lower liability. The rules for MFS filing work very hard to limit the cases where you can reduce tax liability, but it still happens. This is a quirk of the rules as far as I'm concerned - every tax law produces some unintended results here and there.
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Old 02-10-2013, 08:06 PM
Ravenman Ravenman is offline
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I just did my DC taxes today, and I was very surprised to see that "married, filing separately on same return" changed a $800 tax bill into a $500 refund. I can't figure out exactly why that's the case, since the tax software is doing all the work. The Federal return is being filed jointly.
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  #11  
Old 02-10-2013, 08:11 PM
hajario hajario is offline
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Originally Posted by dracoi View Post
This is BS. If we're going to bandy about apocryphal stories about rich guys lobbying Congress, then we might as well give up and go home.

Married Filing Separate serves a real need. It isn't a common need, but the need exists. There are three uses that I see:
1) to limit each spouse's liability for taxes. Remember, a joint return makes you jointly and severally liable for the tax due - including tax assessed under audit. Imagine that you're the trophy wife of Mr. Moneybags, who cheats like crazy on his taxes. You divorce him and two years later, you are notified that a joint return is being audited. The IRS assess $2 million assessment. It turns out he's bankrupt and has no assets, so the IRS takes everything you have. Filing MFS prevents this.
2) to limit each souse's liability for other debts. The IRS will withhold refunds to pay liabilities like back child support, student loans or other taxes. To avoid having your tax refund taken to pay the spouse's liability, you file MFS.
3) to limit tax. Every once in a while, by accident really, MFS produces a lower liability. The rules for MFS filing work very hard to limit the cases where you can reduce tax liability, but it still happens. This is a quirk of the rules as far as I'm concerned - every tax law produces some unintended results here and there.
This is a very good post. I already addressed #3 but you explained it better. The the other case is when the couple is estranged. A friend of mine was in that situation with her ex-husband before the divorce was final.
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  #12  
Old 02-11-2013, 08:43 AM
Sigene Sigene is offline
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in the case of the estranged couple.

What happens if one of them files MFS, but the other files Married filing Jointly?

would there be a bigger tax hit? or does it not matter?
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  #13  
Old 02-11-2013, 09:15 AM
Mithras Mithras is offline
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My wife and I file separately. She makes less than I do and has a pretty high level of student loan debt. Her income qualifies her for the income based repayment plan on the loans and because she's a social worker for a non-profit the remainder of the balance is wiped out after ten years. If we filed jointly, both our incomes would be used to calculate the payment and she wouldn't qualify for the IBR.

Filing separately makes us miss out on the student loan interest deduction and will, when we have kids, preclude us from claiming the child care one. But the money we save on the loan payments surpasses that by a very wide margin.
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Old 02-11-2013, 09:23 AM
Mithras Mithras is offline
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Missed the edit window. My point was, which I didn't really state, it's really as if the government can only look at the final AGI on the tax return and if you want to have them to look at your incomes separately you need to explicitly tell them to do so. And as mentioned above you can't just file as single because of the itemization issue.
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Old 02-11-2013, 09:56 AM
RealityChuck RealityChuck is offline
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Prior to WWII, it was common for men to just abandon their wife and go to a different part of the country. A divorce wasn't possible until several years had passed. The abandoned wife was still legally married, but had no way of knowing her husband's income, or even where he was. She couldn't file jointly without that information, and couldn't use the single rate since she was legally married. Hence, when the tax code was written, it had to have a category to include this status.

It wasn't all that rare; in the 19th century, that was the way many American men "divorced" their wives, moving west and telling everyone they weren't married. There was no way to check.

That sort of abandonment is rare these days (it's far easier to track people down), but the category remains for those who find it an advantage.

The assumption in the original post is that people always choose the most cost efficient way of doing things, but in real life, there are other factors that have nothing to do with costs.
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Last edited by RealityChuck; 02-11-2013 at 09:57 AM..
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  #16  
Old 02-11-2013, 10:39 AM
DrDeth DrDeth is offline
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Quote:
Originally Posted by Shayna View Post
Because some rich guy lobbied Congress some time in the past and said, "I don't want to file jointly with my wife because she makes bupkis and if we file separately we can pay fewer taxes," and his bought-and-paid-for Congresscritter revised the tax code to benefit him.

That's how it always works.

.

Umm, no. Itís almost never a benefit to file MFS, and especially in your scenario, the rich husband would pay a shit-load more if the wife earned very little. You are utterly wrong.

Thatís how it never works.

MFS is rarely used, and when it is, it is because of legal issues, being separated, etc.

Why donít they allow them just to each file Single? Because each filing single is a significant tax benefit in most cases, except in the case cited above with one high earner and one very low earner.
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Old 02-11-2013, 10:41 AM
DrDeth DrDeth is offline
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Originally Posted by Sigene View Post
in the case of the estranged couple.

What happens if one of them files MFS, but the other files Married filing Jointly?


They need both signatures to file MFJ.

The IRS would not allow this.
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Old 02-11-2013, 11:22 AM
Quercus Quercus is offline
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Originally Posted by DrDeth View Post
Umm, no. Itís almost never a benefit to file MFS, and especially in your scenario, the rich husband would pay a shit-load more if the wife earned very little. You are utterly wrong.

Thatís how it never works.

MFS is rarely used, and when it is, it is because of legal issues, being separated, etc.
Not completely true.
I have good knowledge of one case where there were no legal issues, but MFS resulted in less tax overall than MFJ. (Basically, one spouse had reasonable wage income, the other only some realized capital gains; as capital gains tax is lower with lower overall income, so it turned out MFS resulted in less overall tax).
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Old 02-11-2013, 11:24 AM
dracoi dracoi is offline
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Originally Posted by RealityChuck View Post
Prior to WWII, it was common for men to just abandon their wife and go to a different part of the country. A divorce wasn't possible until several years had passed. The abandoned wife was still legally married, but had no way of knowing her husband's income, or even where he was. She couldn't file jointly without that information, and couldn't use the single rate since she was legally married. Hence, when the tax code was written, it had to have a category to include this status.
I'm not sure about all the pre-WWII rules, but in the modern tax code, you can file as single or head of household in the case described. There are several different tests, but even the most stringent only requires that you lived apart all year and had no financial dealings with the other spouse.
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Old 02-11-2013, 12:18 PM
desertmonk desertmonk is offline
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Originally Posted by DrDeth View Post
They need both signatures to file MFJ.

The IRS would not allow this.
It has been my experience that for matters of claiming someone as a spouse or dependent (say mom and ex-husband both claim child) that, for e-filing, the second return to be submitted will get kicked back in error by the IRS. So If I file Married Filing Jointly and my spouse later goes with Married Filing Separately, hers will get rejected.
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Old 02-11-2013, 12:48 PM
DrDeth DrDeth is offline
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It has been my experience that for matters of claiming someone as a spouse or dependent (say mom and ex-husband both claim child) that, for e-filing, the second return to be submitted will get kicked back in error by the IRS. So If I file Married Filing Jointly and my spouse later goes with Married Filing Separately, hers will get rejected.


True, but then if she persists they will check the MFJ return for her signature and if you forged it, Bad Things will occur.

If there is no signature, they will reject your return.
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Old 02-11-2013, 01:38 PM
hajario hajario is offline
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Originally Posted by Quercus View Post
Not completely true.
I have good knowledge of one case where there were no legal issues, but MFS resulted in less tax overall than MFJ. (Basically, one spouse had reasonable wage income, the other only some realized capital gains; as capital gains tax is lower with lower overall income, so it turned out MFS resulted in less overall tax).
Actually, DrDeth's post was completely true.
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Old 02-11-2013, 02:13 PM
Sigene Sigene is offline
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True, but then if she persists they will check the MFJ return for her signature and if you forged it, Bad Things will occur.

If there is no signature, they will reject your return.
I don't believe there is a signature on electronically filed returns, so there are no forging issues?

So the only way for it to get rejected is if the MFJ was filed after the MFS form was processed by the one spouse?
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Old 02-11-2013, 02:17 PM
GreenElf GreenElf is offline
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Originally Posted by doubled View Post
As far as I can tell, "Married filing separately" means you have to pay more taxes I don't understand why there's any reason to have a third "Married but filing separately" status with its own rules (that seem to work against almost everyone)

Is there any sort of logical reason for the tax code to have "married filing separately" with its own rules, instead of simply letting married people use the "single" rules?
The US tax code is designed to encourage people to get married, and have children, and so provides benefits to married couples. Likewise, the tax code is designed to frown upon married couples who decide to part ways. Whoever keeps custody of the children is viewed as the more responsible citizen, so they can file as HOH while the other files MFS, or they may both file HOH if each has custody of a child.

Also, as mentioned, the tax code is designed to discourage happily married couples from filing separate tax returns. Allowing married couples to file separately as Single wouldn't discourage that.

Moreover, the IRS intends Married Filing Separately to be a bad filing status, Single a neutral filing status, and MFJ and HOH to be beneficial filing statuses. If your spouse owes debts to the IRS, you can file as an "injured spouse" to avoid having to file MFS.
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Old 02-11-2013, 02:21 PM
DrDeth DrDeth is offline
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Originally Posted by Sigene View Post
I don't believe there is a signature on electronically filed returns, so there are no forging issues?

So the only way for it to get rejected is if the MFJ was filed after the MFS form was processed by the one spouse?
http://www.irs.gov/taxtopics/tc255.html



Topic 255 - Self-Select PIN Signature Method for Online Registration

If you e-file using online filing software, you must sign the tax return using the self-select PIN (personal identification number) signature method. The self-select PIN signature method allows taxpayers to electronically sign their individual income tax return by selecting a five-digit PIN.


In any case, if two tax returns were filed for the same person, the second one will get frozen, but both will be questions. The system will assume the 2nd is a duplicate filing but when the separated souse sez "No, I didn't file Joint with that sleazbag" , they will verify the MFJ return.

If it turns out you filed a return without her knowlege and consent, it's a pretty serious crime.
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Old 02-11-2013, 02:31 PM
TimeWinder TimeWinder is offline
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Originally Posted by Ravenman View Post
I just did my DC taxes today, and I was very surprised to see that "married, filing separately on same return" changed a $800 tax bill into a $500 refund. I can't figure out exactly why that's the case, since the tax software is doing all the work. The Federal return is being filed jointly.
I'd suggest you pay for a tax pro to look at it (get one of those "second look" services) before you send it in. MFS is an unusual case, so I'd be suspicious of bugs. I've had tax prep training in two states, and in both instances the instructor stated that they'd never seen a MFS reduce tax.

It can happen, but that tax status is designed for cases where either a spouse is unavailable under questionable circumstances (missing, estranged, imprisoned, or otherwise legally untrustworthy, etc.), and is not intended to ever be a benefit. It allows a spouse to file their return when they're not sure what the other spouse will do --that's pretty much all. To get a benefit out of it requires a very unusual set of circumstances, usually involving very high medical expenses and very unbalanced earnings for a childless couple.

(I am not a tax professional, this is not tax preparation advice).
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Old 02-11-2013, 02:47 PM
Sigene Sigene is offline
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Originally Posted by DrDeth View Post
http://www.irs.gov/taxtopics/tc255.html



Topic 255 - Self-Select PIN Signature Method for Online Registration

If you e-file using online filing software, you must sign the tax return using the self-select PIN (personal identification number) signature method. The self-select PIN signature method allows taxpayers to electronically sign their individual income tax return by selecting a five-digit PIN.


In any case, if two tax returns were filed for the same person, the second one will get frozen, but both will be questions. The system will assume the 2nd is a duplicate filing but when the separated souse sez "No, I didn't file Joint with that sleazbag" , they will verify the MFJ return.

If it turns out you filed a return without her knowlege and consent, it's a pretty serious crime.


I wonder if there is ever a case where the person who filed MFJ would NOT be the sleazbag.

Last edited by Sigene; 02-11-2013 at 02:48 PM..
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Old 02-11-2013, 04:58 PM
Ravenman Ravenman is offline
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TimeWinder: thanks. I haven't filed yet and I plan to print everything out and look at it carefully first. If I can't figure out why it changed, that's good advice.
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Old 02-11-2013, 07:45 PM
Manlob Manlob is offline
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If you look at the tax tables, the income levels where tax rate increases for married filing jointly are exactly double what they are for married filing separately. As a result, the first $17,400 of combined income is taxed at the lowest rate (10%) if married filing jointly, but if married filing separately no more (but possibly less) than $17,400 of their combined income is taxed at the lowest rate. Similarly for the 2nd highest rate (15% to $70,700). Since the combined exemptions and deductions are likely to be the same for MFJ and MFS, and you can't get the EIC when filing MFS, tax is very likely to lower for MFJ.

There are some cases where itemized deductions can be higher for MFS. For example, medical expenses greater than 7.5% of income are deductable, and MFS may allow a medical deduction that would not be permitted with MFJ because of too high a combined income. Before 2003 the combined standard deduction for two MFS was greater than for MFJ, but ever since it has been the same.

Before 1971, the tax rates schedules for married filing separately were the same as for single.
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Old 02-11-2013, 08:59 PM
Really Not All That Bright Really Not All That Bright is offline
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Originally Posted by Shayna View Post
As to how it's beneficial, you have to live in one of the 41 states that are not "community property" states where your income is considered 50/50 for each spouse. Then you have to look at whether one spouse makes a significant share of the family income and the other very little. And then you have to look at which spouse can qualify to take more deductions, thereby reducing their tax liability the most.
Why would state law affect federal tax liabilities?
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Old 02-11-2013, 10:38 PM
doreen doreen is offline
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Originally Posted by Really Not All That Bright View Post
Why would state law affect federal tax liabilities?
Because the IRS says so - there's even an entire publication (555) regarding community property
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If you file a federal tax return separately from your spouse,
you must report half of all community income and all of
your separate income
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Community income. Generally, community income is income from:
Community property.
Salaries, wages, and other pay received for the services performed by you, your spouse (or RDP/California or Washington same-sex spouse), or both during
your marriage (or registered domestic partnership/
same-sex marriage in California or Washington).
Real estate that is treated as community property under the laws of the state where the property is located
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Old 02-12-2013, 08:08 AM
Really Not All That Bright Really Not All That Bright is offline
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Huh. Thanks.
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Old 02-12-2013, 12:29 PM
Johanna Johanna is offline
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Originally Posted by dracoi View Post
2) to limit each souse's liability for other debts.
Yes, you definitely have to pay higher premiums for that liability.
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Old 02-12-2013, 12:56 PM
dracoi dracoi is offline
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Originally Posted by Really Not All That Bright View Post
Why would state law affect federal tax liabilities?
There's not always much logic behind law and tax, but the reasoning starts with the fact that community property states give each spouse a 50/50 share of community property income like wages. Since federal law says you pay tax on your earnings and the state says 50% of the spouse's earnings are yours... there you go.

The logic has even been applied to domestic partnerships, but only in WA, CA and NV, because of specific provisions in those states' community property and domestic partnership laws. They still file Single (because federal law refuses to recognize the RDP for an MFJ or MFS status), but they have to allocate income 50/50 using the MFS worksheet. Again, the same reasoning - the state says 50% of the income is yours, and federal law says you pay tax on all of your income.
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Old 02-13-2013, 09:40 AM
Mama Zappa Mama Zappa is offline
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This is BS. If we're going to bandy about apocryphal stories about rich guys lobbying Congress, then we might as well give up and go home.

Married Filing Separate serves a real need. It isn't a common need, but the need exists. There are three uses that I see:
1) to limit each spouse's liability for taxes. Remember, a joint return makes you jointly and severally liable for the tax due - including tax assessed under audit. Imagine that you're the trophy wife of Mr. Moneybags, who cheats like crazy on his taxes. You divorce him and two years later, you are notified that a joint return is being audited. The IRS assess $2 million assessment. It turns out he's bankrupt and has no assets, so the IRS takes everything you have. Filing MFS prevents this.
2) to limit each souse's liability for other debts. The IRS will withhold refunds to pay liabilities like back child support, student loans or other taxes. To avoid having your tax refund taken to pay the spouse's liability, you file MFS.
3) to limit tax. Every once in a while, by accident really, MFS produces a lower liability. The rules for MFS filing work very hard to limit the cases where you can reduce tax liability, but it still happens. This is a quirk of the rules as far as I'm concerned - every tax law produces some unintended results here and there.
Interesting. I hadn't ever thought of your first two scenarios. So while it would cost more tax money in the short term, there are the other benefits (in the case of #1, a longer-term scenario to be sure).

We saved money by filing MFS - just once. They had just changed the law regarding deductible IRAs so that if you had a 401(k) or whatever, you couldn't deduct an IRA (subject to income cutoffs etc. ). BUT - they didn't close the loophole that if you filed separately, your spouse's income wouldn't cause you to be cut off.

My husband was in grad school and earned almost nothing. I had a real job, and was earning enough that we were past the cutoff. But by filing separately, he was able to put aside the IRA money and take the deduction. We crunched numbers both ways and we saved a couple hundred dollars by doing it separately. Admittedly, we were out more cash that way (because of the IRA deduction) but that was money into savings, so we didn't *lose* the money.
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  #36  
Old 02-14-2013, 12:37 AM
Old Eel Old Eel is offline
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To add to the discussion, I think same-sex domestic partners in Oregon have to file as MFS or have to make a dummy federal MFS for the state. I'm sorry I don't know the details except that it makes people angry.
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  #37  
Old 02-14-2013, 08:26 AM
Sailboat Sailboat is offline
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Quote:
Originally Posted by dracoi View Post
2) to limit each souse's liability for other debts
Drunkards do tend to run up debts.
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  #38  
Old 02-14-2013, 10:14 AM
Leo Bloom Leo Bloom is offline
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Originally Posted by dracoi View Post
This is BS. If we're going to bandy about apocryphal stories about rich guys lobbying Congress, then we might as well give up and go home....
It's a favorite trope for many, and apparently works like dynamite.
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