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Taxpayer asks:

Dear Taxgirl:

Hi! My husband and I had a whirlwind beginning to our relationship.  Long story short, we got married in secret and still haven’t told our families. I share an accountant with my entire family and my mother is involved with my taxes because of different financial situations we have in our family.  I don’t trust my accountant to not share this information with my mother, so can we both file as single without getting in trouble or anyone finding out?

My husband doesn’t have the same permanent address as me and he’s filling in a different state.

Thank you!

Taxgirl says:

It doesn’t matter what you put on your Christmas cards: when it comes to taxes, married is married. For federal income tax purposes, marital status is determined by state law as of the last day of the calendar year. If you are married on December 31, 2018, you are considered married for the 2018 tax year.

There are five filing statuses to choose from:

  • Single;
  • Married Filing Jointly (MFJ);
  • Married Filing Separately (MFS);
  • Head of Household; and
  • Qualifying Widow(er) With Dependent Child.

(You can find out more about filing status here.)

If you’re not married because you were never legally married or you were legally separated or divorced according to the laws of your state, you can file as single. You can’t file as single just because you feel single or want to file as single.

If you and your husband both file as single, you may be taking advantage of tax breaks that you’re not entitled to claim. For example, the student loan interest deduction is per tax return, not per taxpayer. So while a married couple would be limited to the $2,500 cap, two singles would be limited to a $5,000 cap. Choosing the wrong filing status can also skew phaseouts and limitations. The result is that your entire return could be flawed. The bigger problem is, of course, that by choosing the wrong filing status, you’re lying on the return.

If you’re found out, you’ll have to repay the tax that you should have paid if you had filed properly. You’ll also likely have to pony up penalty and interest.

Additionally, under Title 26 USC § 7206(1), a taxpayer who “[w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter” is committing a crime.

Keep in mind that you’ll be asked your filing status for tax purposes more than once. In addition to your federal form 1040, you may have to fill out state and local tax forms. And, of course, many informational forms and schedules require you to provide your filing status. For example, remember form W-4? It helps your employer determine how much federal tax to withhold from your paycheck. To do that, you have to report your filing status, and as with the federal form 1040, you sign under penalty of perjury.

There are non-tax reasons why this isn’t a good idea, too. If you want to apply for a mortgage or other loan which requires copies of your tax returns, you’re going to have to keep perpetuating the lie. Ditto for health insurance and other work-related benefits like retirement accounts, as well as legal contracts like deeds and mortgages which may require you to offer proof of marital status. How you answer those questions could have both legal and tax consequences.

With so many moving parts, keeping up with the lie is going to catch up with you. As Mark Twain once said, “If you tell the truth, you don’t have to remember anything.”

The bottom line is that this definitely isn’t a good strategy on the tax side. Only you can figure out whether it’s a good strategy on the family/relationship side, but it might be worth considering whether you want to start your new life with a lie. Best of luck.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to “ask the taxgirl.”

It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss, you won’t want to miss a single letter.

S is for Surviving Spouse

‘Tis impossible to be sure of anything but Death and Taxes. 

That’s never more true than at tax time. Unfortunately, dying doesn’t result in a pass on filing taxes. By law, you must file a final return for a decedent (a person who died) if he or she meets the filing requirements as of the date of death. The bigger question, however, tends to be, “What do I do if I’m the surviving spouse?” Here’s what you need to know:

If your spouse died during the year, you are considered married for the whole year and can choose to married filing jointly as your filing status. If your spouse died during the year and you file a joint return, you generally can claim your spouse’s personal exemption (remember there are no personal exemptions in 2018). If you remarry during the year, however, you can’t claim an exemption for your deceased spouse (some tricky rules apply if you don’t have any gross income, so check with a tax professional if that’s the case).

If you have dependent children, you may be able to file as qualifying widow(er) with dependent child for the two years following the year in which your spouse died. For example, if your spouse died in 2017, you would file as married filing jointly for 2017 (see above) and for 2018 and 2019, you can elect to file as qualifying widow(er) with dependent child.

If your spouse died in 2018 before filing a 2017 return, you can still file for 2017 as married filing jointly. But don’t automatically assume you should sign the return for your spouse: If your spouse died before signing the return, the executor or administrator must sign the return for your spouse (that might be you but isn’t always). If no one been appointed as executor or administrator, you can sign the return for your spouse and write “Filing as surviving spouse” under the signature line.

Once you file a joint return, you typically can’t choose to file separate returns after the due date of the return. However, the executor or administrator can change a joint return elected by the surviving spouse to a separate return for the decedent. The executor or administrator has one year from the due date of the return, including extensions, to make that change.

For your taxes from A to Z, here’s the rest of the series:

It’s my annual “Taxes from A to Z” series! Next up:

Q Is For Qualifying Widow(er) With Dependent Child

After the death of a spouse, figuring out your taxes is probably the last thing on your mind. Uncle Sam gives you something of a tax break by allowing you to continue to file as married filing jointly in the year of death if you otherwise qualify to use that status.
But what about the year after? And the year after that? If you have dependent children, you may be able to file as qualifying widow(er) with dependent child for the two years following the year your spouse died. For example, if your spouse died in 2014, you would file as married filing jointly for 2014 but then, for 2015 and 2016, you can elect to file as qualifying widow(er) with dependent child.
To qualify, you must have been entitled to file as married filing jointly for the year in which your spouse died – even if you didn’t file with that status. You cannot remarry in any of the years you’re filing as a qualifying widow(er) with dependent child (if you remarry, file as married with your new spouse) and you must have a child for whom you can claim an exemption. For this purpose, your child or stepchild (but not a foster child) must have lived in your home all year (except for temporary absences) where you paid more than half the cost of keeping up a home. To figure the latter, you can use the worksheet found in IRS Pub 17.
What does filing as qualifying widow(er) with dependent child get you? It’s a sort of hybrid filing status which allows you to continue to use the joint tax tables and the equivalent standard deduction amount. It’s not the same as filing a joint return otherwise. However, the the ability to use those numbers (as opposed to single or Head of Household) will generally produce a more tax-favored result.

Love is much nicer to be in than an automobile accident, a tight girdle, a higher tax bracket or a holding pattern over Philadelphia.”
Judith Viorst, children’s author and believe it or not, tax activist

I love Valentine’s Day. I’m a sucker for flowers and candy and goofy cards – anything for an excuse to be sweet and mushy (yes, tax geeks have feelings, too). And I realize that not everyone is as crazy about it as me – and that you might be stuck for a last minute Valentine’s Day gift. So, I’m here to help you out. Consider these eleven tax-favorable Valentine’s Day gifts, revised for 2013:

  1. Buy a vacation house. You already know that you can deduct costs associated with buying your main home, right? Mortgage interest and real estate taxes are deductible on a Schedule A if you itemize. But you can also claim (subject to certain limitations) expenses associated with a second home. And it doesn’t have to be the Biltmore House. A second home includes not only a house but a condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Yes, that also means a yurt (just in case anyone is reading and wondering what to get me *ahem*). And a lake house. And a beach house. You get the picture.
  2. A wedding ring. People love to propose on Valentine’s Day – ostensibly because it’s the most romantic day of the year. While the actual cost of the ring isn’t deductible (warning: do not construe this as an excuse to skimp on the ring), the tax break is the ever after. Your filing status is determined as of the last day of the year, so even if you don’t get married until December 31 this year, you can still file as married filing jointly. And even though we hear a lot about the “marriage penalty,” the truth is that most married couples pay less in taxes as a married couple than they would have paid had they stayed single. For most couples, “I do” can result in a lower tax bill.
  3. Get some tax relief so you can get married. Have a tax debt? Is it interfering with your future plans? I wouldn’t be surprised. One of the most common reasons for sorting out tax debt is “encouragement” from a significant other. Let’s face it: nobody wants to marry into a tax mess. It can cause all kinds of problems moving forward. Make your loved one happy and make arrangements to clean up your tax debts now. A fresh start is an amazing gift.
  4. Get a physical. We all grow up believing in happily ever after. We don’t tend to think about unexpected illnesses and hospital beds. If you want to spend forever with your significant other, you need to take care of yourself. And that means regular check-ups and testing. Depending on your sex and age, that might also mean screenings for breast cancer, colon cancer and heart disease. And it’s all deductible if you itemize. If you’re planning to give someone your heart, make sure it’s healthy. You’re paying for it anyway, right?
  5. Go to school – or send your sweetie to school. For 2013, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for your own education or for your spouse (or other dependents). You don’t necessarily have to get a degree: the lifetime learning credit is available for tuition and related expenses at an eligible educational institution. An eligible education institution includes any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education (ask the admissions office if you’re not sure). So stop talking about culinary school or music school and do it. Life’s too short for the coulda, shoulda stuff. Find your passion. And what better day to do that than on Valentine’s Day?
  6. Make a gift in your sweetheart’s honor. What do you get the person who has everything? What about something for those that have nothing? One way to show how much you care about your sweetheart is to make a donation to a cause in his or her name. Is he or she a nature lover? Dedicated to saving the whales? Passionate about cancer research? Show you care about your loved one by supporting causes close to him or her (you can find my list for 2012 here). If you itemize, you can take a deduction for your gift. And if you’re over 70 1/2 and taking withdrawals from your IRA, you can contribute up to $100,000 tax free from your IRA directly to charity (this perk was extended under the new budget deal). It’s a win-win. Actually, it’s a win-win-win. The charity wins, your sweetheart wins and you win. Plus, it’s a really wonderful thing to do.
  7. Stop smoking. I’ll be blunt: smoking stinks. Literally. It’s disgusting. It’s expensive. And it will kill you. So quit now. Not only will you save a lot of money out of pocket (a pack a day habit will cost, on average, nearly $2,000 per year for a smoker), the cost of participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal that require a prescription is deductible as a medical expense if you itemize. So stop smoking now. Your future self – and your significant other – will thank you for it.
  8. Create or contribute to a spousal IRA. What says “I care about you” more than providing for your spouse in the future? If you’re married to someone and you make more money than he or she does, you can contribute to an IRA on their behalf. So long as you file a joint tax return, you can take make a contribution to a traditional IRA for your spouse of up to $5,500 ($6,500 if your spouse is age 50 or older) in 2013. Phaseouts and limitations apply (of course they do).
  9. Have a baby. Okay, so the time frame on this one can take a bit longer than 24 hours but there’s nothing that says you can’t get started on Valentine’s Day. I’m not gonna lie to you: having a kid is a lot of work. And it’s crazy expensive and time consuming (take this from a woman who just baked, frosted and decorated four dozen cupcakes for school Valentine’s Day parties last night in between taping Hershey’s chocolate hearts onto paper Valentine’s cards). But there are significant tax breaks associated with having children including increased exemptions and the earned income tax credit. Again, the breaks don’t actually offset the real costs of having kids but if this is a step you were considering taking anyway… it could be a nice way of moving your relationship forward. And it’s a whole lot more fun than giving someone a sweater. But be forewarned: unlike for a sweater, the return policy for babies suck.
  10. Hire a tax professional. Yes, it’s self-serving. But consider this: statistically, most fights between couples are about money. Anything that you can do to make that less likely is a real plus, right? In addition, the IRS estimates that the average federal form 1040 will require 16 hours to complete from record-keeping to submission. Think about what you could do with those extra hours… watch a movie, go out to dinner, go for a walk. And the tax bonus? Paying for a tax professional is deductible if you itemize. So pick up the phone and make an appointment with someone to help you out with your taxes this year.
  11. Fill-in-the-blank with the expensive gift of your choice.If you file a federal form 1040 and itemize deductions on Schedule A, you have the option of claiming either state and local income taxes or state and local sales taxes. You can’t claim both. If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount. So if you’re thinking about buying a big ticket item, take heart: the sales taxes are deductible.

So there you go: eleven tax-favored gifts on Valentine’s Day. Now, you have zero excuses. And you’re welcome.

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Tax season can be intimidating for seasoned pros, not to mention the fear it strikes into the hearts of newbies. To help you out (and inspired by the smart and savvy @samsharf), I’ve put together a series on getting started with your taxes.

WAIT! DON’T STOP READING!

Even if you’re not a newbie – maybe you’ve done your own taxes for years or maybe you have a tax pro who does your taxes for you – there might be a tip or two for you here, too. Since 2001, Congress has made nearly 5,000 changes to the Tax Code bringing it to nearly 4,000,000 words. That’s a lot to take in. It’s constantly changing. And nobody – not even Nate Silver – can know everything.
But this series is intended to give you the basics. We’ll start with the very basic of basics: do I have to file?
Not every person who received income in 2012 has to file a federal income tax return. There are a number of factors that affect whether you have to file including how much you earned – and the source of that income – as well as your filing status and your age. For most folks, this is pretty straightforward. Using the chart below, choose your filing status (if you’re confused about this, I’ll have more on this later in the series), your age and your gross income.
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If your gross income is above the threshold for your age and filing status, you should file a federal income tax return. This is, of course, assuming that no other person is claiming you on their federal income tax return.
If you can be claimed as a dependent on someone else’s return, the rules are a little bit different. For single dependents who are under the age of 65 and not blind, you generally must file a federal income tax return if your unearned income (such as from dividends or interest) was more than $950 or if your earned income (such as from wages or salary) was more than $5,950. For single dependents who are over 65 or blind, you generally must file a federal income tax return if your unearned income was more than $2,400 ($3,850 if 65 or older and blind) or if your earned income was over $7,400 ($8,850 if 65 or older and blind).
For married dependents who are under the age of 65 and not blind, you generally must file a federal income tax return if your unearned income was more than $950; if your earned income was over $5,950; or if your gross income was at least $5 and your spouse files a separate return and itemizes deductions. For married dependents who are over 65 or blind, you generally must file a federal income tax return if your unearned income was more than$2,100 ($3,250 if 65 or older and blind); your earned income was over $7,100 ($8,250 if 65 or older and blind); and your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Keep in mind that this applies to dependents who are also married, not just simply married taxpayers. For tax purposes, your spouse is never considered your dependent.
You may also have to file for other reasons. The most frequent reason for filing a federal income tax return even when you don’t meet the criteria above is for self-employed persons: those who are self-employed must file a federal income tax return if net earnings are at least $400. Other reasons to file include when you own special taxes like the alternative minimum tax (AMT), household employment taxes, taxes on retirement accounts or Social Security and Medicare tax on tips you did not report to your employer or on wages from an employer who did not withhold those taxes.
Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file to take advantage of tax breaks and credits which might be available. You might be entitled, for example, to a refund for excess withholdings. You might also be able to claim a refundable credit such as the earned income tax credit (EITC). Refundable credits mean that you are entitled to a refund if the amount of the credit exceeds your own tax liability. Other examples of refundable credits include the additional child tax credit and, within limits, the American Opportunity Credit for students.
Most taxpayers fall pretty neatly into one of these categories. If you think your situation is a bit out of the box, it’s usually best to err on the side of filing (you definitely don’t want a letter from IRS saying that you should have filed).
It’s also important to consider that these are the federal rules. The rules for your state might be very different. They are quite inconsistent, for example, with the rules in my own state of Pennsylvania: we have no personal exemption and thus, taxpayers are subject to tax at the first dollar. It is possible, then, that you might have to file a state (or local) income tax return even if you are exempt from federal income tax.
As always, if you have questions, ask for help. There are a lot of great resources out there. Most software packages have an interview interface that can walk you through your situation – but remember that those are only as good as your answers. For the best results, consult with a tax professional or call the taxing authorities (for IRS, call 1.800.829.1040 and for state, call the Department of Revenue).

On Friday, the Supreme Court of the United States granted certiorari on two same sex marriage cases. Those cases include Hollingsworth v. Perry, a challenge to California’s controversial Proposition 8 measure, and a case out of New York, U.S. v Windsor, which considers the constitutionality of the Defense of Marriage Act (DOMA).

As noted on the blog before, lawyers and judges like to use Latin. So here’s a quick primer: granting certiorari (or “granting cert” for the really cool hipster lawyers) means that the Supreme Court will hear the matter.

Some cases have what’s called “original jurisdiction” in the Supreme Court; those cases, which are defined by statute (28 U.S.C. § 1251) go straight to the Supreme Court. The typical case associated with original jurisdiction would be a dispute between the states. Most cases, however, don’t go that route. To be heard at the Supreme Court level without having original jurisdiction requires the losing party at the appellate level to file a petition seeking a review of the case. If the Supreme Court grants the petition and decides to hear the matter, it’s called a writ of certiorari. And that’s what happened here.

The two matters, Proposition 8 and defense of DOMA, feel interrelated since on a basic level, they both touch on same sex marriage. But on legal grounds, they’re very different.

Proposition 8 was put on the ballot in California in 2008 (wow, was it really that long ago?) and added a new provision to the California Constitution which provided that “only marriage between a man and a woman is valid or recognized in California.” In other words, it was a ban on same-sex marriage. The matter went to court and was initially upheld (though existing same-sex marriages were grandfathered). In 2010, U.S. District Court Judge Vaughn R. Walker overturned Proposition 8 in Perry v. Schwarzenegger finding that the law violates same sex couples’ rights to equal protection and due process under the US Constitution. That decision was affirmed by appellate courts in 2012.

I had a sense in 2010 – and I believe it to still be the case today – that even if the Supreme Court hears Proposition 8 (and now we know it will), it won’t be an earth shattering verdict for same sex marriage. It will be, I think, much like other constitutional rights cases and may come down to a matter of interpretation of individual rights as defined by the high court. Even if the law is interpreted in favor of overturning Proposition 8, I suspect the ruling will be limited to the issues at law as defined in California.

I said, in 2010, that the answer on same sex marriage wouldn’t come down to Proposition 8, rather “any substantial ruling about the rights of same sex couples will be manifested: not in a statewide vote, not in parades and demonstrations but rather in the mere tick of a box on a tax return.”

And that’s where the DOMA case becomes interesting. U.S. v Windsor isn’t about so much about the individual rights of folks to marry but the rights of states to make rules that are at odds with the federal government.

Here are the facts in Windsor: Edith Windsor, a resident of New York, married Thea Spyer, her partner of 40 years, in Canada. Two years later, Spyder died. At her death, New York had in place a law which recognized same-sex marriages performed in other jurisdictions. So for purposes of New York law, Spyer and Windsor were considered married. However, Spyder’s estate was required to pay more than $363,000 in federal estate taxes on the transfer of her assets to Windsor because the federal government does not recognize same sex marriages because of DOMA.

DOMA has landed before high courts before – though not our highest court. In 2009, the Tax Court heard a case on DOMA which was settled without addressing the specific issues in DOMA. That case didn’t have great facts, prompting me to write that year, “…[Y]ou want to talk DOMA? File a bona fide DOMA challenge.”

Windsor is a bona fide DOMA challenge. Here’s why: throughout history, the federal government has been very wary to trample on states rights issues. And Congress has tended to defer to the state’s interpretation of marriage. This interpretation has been relied upon for federal tax purposes in almost every case. In fact, on the instructions for the federal form 1040, the IRS indicates that “state law governs whether you are married or legally separated under a divorce or separate maintenance decree.” However, as a result of DOMA, there is one significant exception, codified in 1996: “[f]or federal tax purposes, a marriage means only a legal union between a man and a woman as husband and wife, and the word “spouse” means a person of the opposite sex who is a husband or a wife.” By January 2013, same sex couples will have the right to marry in nine states (Connecticut, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont, and Washington) and the District of Columbia – those marriages will not be recognized by the U.S. government for tax purposes.

So let’s throw our personal views about same sex marriage out of the window for a second and think about the law. From a states rights and federalist perspective, a law which seeks to invalidate the right of states to set their own definitions of marriage is concerning. In other words, it’s not about protecting a specific class of persons – as Proposition 8 could be interpreted – but about allowing states to set their own rules and have those rules be respected by the federal government. Arguing that the federal government should be allowed to disregard the sanctity of state laws is a tough sell at the Supreme Court level. Not impossible, perhaps, but a tough sell.

Will the court strike down DOMA completely in 2013? I don’t know that I see that result. I could see a pretty narrow ruling that might be limited to the rights of states to make laws that are respected for federal tax reasons. That, however, could open the door for bigger things. In the end, Benjamin Franklin may be right. To paraphrase a little, it may all come down to death and taxes.

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And just like that, summer is nearly over and it’s back to work. This week, I’ve been sorting through the “Ask the Taxgirl” mailbag and I’m seeing a number of questions that are similar in nature. Many of them are related to the same, tired arguments that taxpayers make over and over. Just because your neighbor, co-worker – or even your mom – says it’s so, doesn’t make it so. And the “Google defense” (you found it on the web) is about as effective as the “Turbo Tax defense.”

So tread carefully. To help you sort out the good from the bad, here are eleven tax myths, debunked:

  1. You have to itemize to take advantage of tax deductions. Yes, many of the most popular tax deductions (think home mortgage interest and medical expenses, for example) require you to itemize, or file a Schedule A, in order to take advantage of the benefit. But not all tax deductions require you to itemize. A number of deductions can be found on the front of your federal form 1040 at the Adjusted Gross Income section (generally, lines 23-37). Those deductions are sometimes called “above the line” deductions and are available to you whether you itemize or claim the standard deduction. They include such popular items as the Tuition and Fees Deduction, Alimony and Moving Expenses. The take away? Save those receipts and keep good records even if you don’t itemize.
  2. You don’t have to claim payments received so long as they are under $600. This is probably one of the most repeated tax myths out there. So, let me clear it up for you quickly: income is income, no matter the amount. The threshold for required reporting from the payor is $600 which means that if payments are at least $600, a federal form 1099 must be issued. Some folks believe that if no 1099 is actually issued, you don’t have to report it. That’s not true. You have to report all of your income, from whatever source, on your tax return unless it’s otherwise excluded.
  3. Head of Household status applies to anyone with kids. At some point, I realize that almost all parents assert to their kids in a very loud voicethat they are the head of the house. But that definition and the one allowable by IRS are not the same: you can only file as Head of Household (HOH) if you are unmarried (!) and provide a home for a dependent. That means you must be single, divorced, or otherwise unmarried at the end of the tax year and (1) you paid more than 50% to keep a home for the entire tax year for a parent who was a dependent OR (2) you paid more than 50% to keep a home for the entire tax year with your dependent (there are some exceptions to this rule). You are considered unmarried for purposes of HOH even if you were not divorced or legally separated at the end of the tax year if all of the following apply:
    • You lived apart from your spouse for the last 6 months of the tax year (don’t count temporary absences for business, medical care, school, or military service) AND
    • You file a separate tax return from your spouse AND
    • You paid over half the cost of keeping up your home for the tax year AND
    • Your home was the main home of your child, stepchild, or foster child for more than half of the tax year AND
    • You can or could claim (under the rules for children of divorced or separated parents) this child as your dependent.
  4. You’re out of the woods with IRS if you make it 3 (or 5 or 7) years without filing a return. For most taxpayers, the statute of limitations – meaning the time the IRS has to examine your tax return – is three years following the date of filing or the due date of your tax return, which ever is later. But. There’s a bit exception to this rule: if you don’t file a return at all, the statute of limitations never actually runs. In that event, you’ll want to hold onto your records, well, for forever (really, it’s much less work to simply file).
  5. You are not responsible for mistakes on your return made by your tax professional. Tax professionals are human and they make mistakes just like anybody else (hopefully, fewer than anybody else when it comes to tax returns). It happens. However, that doesn’t excuse you as a taxpayer. You still have a responsibility to read and understand your returns before you sign them. And if there’s a problem, it has to be fixed and that becomes your responsibility. The extent of the tax professional’s responsibility might figure into any mitigation for penalties (or any civil or contract claims you might have against the tax professional) but the IRS buck stops with you.
  6. Fixing a mistake on a tax return will result in an audit. Taxpayers are often afraid to amend their tax returns because they feel that it might increase the chance of an audit. But that’s wrong, wrong, wrong. Amending your return when you find that you’ve made a mistake is a good thing. Amended returns don’t increase your risk of audit but mistake-laden ones do.
  7. After the age of 55, you can sell your house tax-free. Well, true… in 1996. The rule used to be age dependent but changed under President Clinton (which may or may not have contributed to the bubble). Now, the rule is that a taxpayer can exclude from gross income up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of a personal residence so long as you’ve lived in it for two of the last five years. This rule doesn’t apply to second homes or vacation homes – and it’s not a one-time deal. You can sell and sell and sell and exclude away so long as you meet the rest of the criteria.
  8. Minors don’t have to file and pay taxes. This can be true but isn’t always. Whether or not a child must file a federal income tax return — and the rate at which the child pays tax — depends on whether it is earned income (income from wages, salary or self-employment) or unearned income (generally passive income like money earned from dividends and interest). Even if a child’s income is to be taxed at the child’s parents’ tax rate, that does not necessarily mean that the income has to be included on the parents’ tax return; the child can opt to file a separate return (and in fact, that can sometimes be preferable for all kinds of reasons, including the dreaded AMT).
  9. Getting the biggest tax refund possible is the best possible result at tax time. Ugh. This is the myth that drives me the most crazy. Yes, getting a refund is much more fun that owing at the end of the year. But moderation, folks. The average refund last year was nearly $3,000. That’s a lot of money. Your money. And you’re not getting paid any interest while the government hangs onto your cash. Plan wisely.
  10. Employer-provided health insurance is taxable. There have been a lot of rumors flying fast and furious about what’s happening to employer-provided health insurance for 2012. The amount of benefits paid on your behalf will appear on your form W-2 as a reported item in Box 12, using code DD. Under the new health care plan, there may be a penalty for a taxpayer who is not covered by health insurance. The reporting requirement will eventually assist the IRS in verifying that taxpayers have coverage. Additionally, the new reporting requirements will help identify those taxpayers who will be subjected to the so-called Cadillac tax on high-dollar insurance plans (effective in 2018).
  11. Receipt of a refund means the IRS agreed with my tax return. No. Receipt of a refund means that the IRS mailed (or direct deposited) money that you said you were entitled to. It does not mean that the IRS agrees with what you reported; it merely means that the initial information you included didn’t raise any flags, your math didn’t stink and the Treasury didn’t offset your refund with any federal obligations.

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I would guess a full 50% of the questions that come my way about filing status focus on whether it makes sense to file as married filing separate. My answers tend to be split between “no because you’re single” and “it depends.”

My advice is not to make this any more difficult than it needs to be. Your marital status is determined as of the last day of the tax year (that’s December 31 for most taxpayers) according to state law. If you’re married on that day, you’re married. If you’re not, you’re not. There’s not much room for a gray area with two exceptions: same sex marriages are not recognized under federal tax law and you may be considered single *if* your state allows for legal separation.

If you are married, you generally have two choices: married filing jointly and married filing separate. In most cases, if you are married and choose to file as married filing separate, you will usually pay more tax. Usually. Some exceptions apply. But in the great majority of cases, you will pay more tax.

If you file as married filing separate, you still have to coordinate a bit with your spouse. While you include only your own income, deductions, exemptions and tax credits, you still have to include your spouse’s information, including Social Security Number or Taxpayer ID. You also have to elect the same deduction option as your spouse: you must both opt to itemize or you must both opt to take the standard deduction. You may not each independently elect itemized or standard deductions.

If you file as married filing separate, you lose the option of claiming some tax preference items. For example, you cannot take the student loan interest deduction, the tuition and fees deduction, the education credits, or the earned income credit.

So why do it? There are a few scenarios where electing married filing separate status makes sense:

  • Privacy. It’s rare that your spouse’s tax return will be made public but if it is, filing separately ensures that your own returns stay private. Who falls into this category? Generally, the spouses of politicians. Think Teresa Heinz-Kerry or Cindy McCain, both wealthy women in their own right who might not want the world to know their business.
  • Trust (or lack thereof). These days, many married couples maintain separate accounts (I do) and have separate assets. Sometimes it’s for convenience purposes. Sometimes it’s to keep some semblance of independence. And sometimes it’s for professional reasons. That doesn’t always translate into separate tax returns. However, if you maintain separate financial lives to the point where you don’t understand/care/want to know what’s going on with your spouse’s finances, you may also not wish to file a joint tax return. You can’t simply claim ignorance if your spouse makes a significant error: the IRS expects you to review and understand your tax return before you sign it. If you don’t have a level of comfort signing a joint return, don’t. That’s a great reason to file separately.
  • Protection. There’s a great line in the movie Steel Magnolias when Truvy says to Clairee, “If you can achieve puberty, you can achieve a past.” It’s true. Many taxpayers these days marry someone with a past… past tax debts, defaulted student loans, you name it. It happens. Filing separately may preserve a spouse’s right to claim a refund (yes, you can file some extra papers to achieve the same goal but that’s an awful lot of work).
  • Medical or Other Expenses. Occasionally one spouse has significant medical or other expenses but little income. Since medical expenses must meet that 7.5% floor before you can deduct them, joint filers may have a hard time meeting that threshold. However, a taxpayer filing separately with a relatively low income can hit the floor much more quickly. Ditto for miscellaneous expenses subject to the 2% floor. Keep in mind, though, that your spouse has to itemize if you do, so this only works if there are enough combined deductions between the both of you.
  • Money. Sometimes, the numbers just work out better. And why pay more than you have to?

So there you go. There is no rule that says, “Thou shalt elect married filing jointly.” Sometimes it makes sense to elect married filing separate. Sometimes. Run the numbers – or discuss with your tax pro – to see if it makes sense for you.

*Caveat/Disclaimer/Admitting that I don’t understand our friends out west: keep in mind that there are some particularly kooky rules (okay, that’s my description, not the IRS’) if you live in a community property state. Be sure to consult with your tax professional for details.

We have our winners! Lucy, Jeremy and MarvS were randomly chosen from the comments – I’ll be in touch!

Luke_Wilson.jpg

What could be more fun to talk about on the most romantic day of the year than taxes?

Er, okay, maybe I see your point.

How about instead, we have a fun giveaway that allows you to win free codes for TurboTax Online Deluxe 2010? That way, instead of blowing cash on tax software, TurboTax will make it easy for you to focus on romantic dinners and roses for that someone special (or your favorite tax blogger, hint, hint).

I have three software packages to give away. And since I’ve made you work all tax season for the giveaways so far, I’m making this one easy peasy. All you have to do is answer the following question:

One of the most common series of questions I get at taxgirl.com focuses on filing status, often along the lines of “Am I married? Should I get married?” – that sort of thing. So in honor of love and taxes (and relationships), tell me: who is your celebrity crush?

Of course, there are rules. I’m an attorney, remember? Here they are:

  • Post your answer in the comments section below or on the taxgirl fanpage on Facebook. I love my Twitter followers (muah!) but for this particular giveaway, tweets will not be counted.
  • For purposes of the giveaway, your comment must be entered (even if it doesn’t show up) by the end of Valentine’s Day, February 14, 11:59 p.m. EST.
  • Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts.
  • Enter as many times as you’d like but you must leave a different comment each time. My normal comment policy applies. I have standards, you know.
  • You must leave a valid email address (it will not be made public) with your comment so that I can contact you if you are a winner.
  • I’ll choose three winners at random using a random number generator.
  • Pingbacks and trackbacks, while appreciated, won’t count for purposes of the giveaway.
  • One winner per tax season. Feel free to post a comment if you’ve already won but only one free software package per person – let’s spread the love around.
  • And I won’t disqualify you if you say Scarlett Johansson but I may read your comment with contempt. You’ve been warned.

Let the fun begin!

(Image credits: Jerry Avenaim (Own work) [CC-BY-SA-2.5-2.0-1.0, GFDL or CC-BY-SA-3.0], via Wikimedia Commons)

We have our winners! Lucy, Jeremy and MarvS were randomly chosen from the comments – I’ll be in touch!

Luke_Wilson.jpg

What could be more fun to talk about on the most romantic day of the year than taxes?
Er, okay, maybe I see your point.
How about instead, we have a fun giveaway that allows you to win free codes for TurboTax Online Deluxe 2010? That way, instead of blowing cash on tax software, TurboTax will make it easy for you to focus on romantic dinners and roses for that someone special (or your favorite tax blogger, hint, hint).
I have three software packages to give away. And since I’ve made you work all tax season for the giveaways so far, I’m making this one easy peasy. All you have to do is answer the following question:

One of the most common series of questions I get at taxgirl.com focuses on filing status, often along the lines of “Am I married? Should I get married?” – that sort of thing. So in honor of love and taxes (and relationships), tell me: who is your celebrity crush?

Of course, there are rules. I’m an attorney, remember? Here they are:

  • Post your answer in the comments section below or on the taxgirl fanpage on Facebook. I love my Twitter followers (muah!) but for this particular giveaway, tweets will not be counted.
  • For purposes of the giveaway, your comment must be entered (even if it doesn’t show up) by the end of Valentine’s Day, February 14, 11:59 p.m. EST.
  • Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts.
  • Enter as many times as you’d like but you must leave a different comment each time. My normal comment policy applies. I have standards, you know.
  • You must leave a valid email address (it will not be made public) with your comment so that I can contact you if you are a winner.
  • I’ll choose three winners at random using a random number generator.
  • Pingbacks and trackbacks, while appreciated, won’t count for purposes of the giveaway.
  • One winner per tax season. Feel free to post a comment if you’ve already won but only one free software package per person – let’s spread the love around.
  • And I won’t disqualify you if you say Scarlett Johansson but I may read your comment with contempt. You’ve been warned.

Let the fun begin!
(Image credits: Jerry Avenaim (Own work) [CC-BY-SA-2.5-2.0-1.0, GFDL or CC-BY-SA-3.0], via Wikimedia Commons)

Taxpayer asks:

I was in college until May, and have been supporting myself since. I just filed my taxes for free at turbotax.com, filed as an independent, and got the email that my return has been accepted. Then my parents told me that they claimed me as a dependent so that they could keep me on their health insurance. Can I undo my taxes?

Taxgirl says:

Dear college students,

Please ask your parents what they plan on doing before you file your taxes.

Love,
taxgirl

I get a lot of variations on this question. So my first piece of advice, though it’s a bit late in your case, is to ask your parents what the plan is before you file your tax return.

In your case, it’s already a done deal. It’s tough to tell who filed first from your facts, but it’s likely that the Internal Revenue Service (IRS) will bounce the second filed return. If that’s your return, that will work out well for you since the IRS will send a little note telling you that you someone else claimed you and you can simply agree that you’re a dependent.

Since your return was accepted, though, I’m guessing that the order is reversed, which means your parents’ return will be bounced. To fix that, you’ll need to amend your tax return. What will most likely happen is that your parents will get a letter informing them that they are not allowed to claim you as a dependent because “someone else” claimed you; the letter won’t say that it was you because of privacy issues. Your parents will have to work it out with the IRS while you file your amended return.

Assuming that you and your parents agree that you’re the one who needs to change your return, you can amend your return by filing a federal form 1040X (downloads as a PDF). Read the instructions carefully but the part that applies to you is at Page 2, Exemptions. Keep in mind that when you amend your tax return, you may now owe some tax.

As an aside, under the new health care law, your parents are allowed to keep you on their health care plan until you reach age 26 even if you are not claimed as a dependent on their tax return (read the rules here). If health insurance is the only reason that they are claiming you, they don’t have to do so. That said, if there are other reasons, the normal rules for claiming a dependent (regarding support, etc.) apply.

Like any good lawyer, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Taxpayer asks:

I’m getting married in March. Since I will be married when I file my taxes, do I file married?

taxgirl says:

Nope. For federal income tax purposes, your filing status is determined as of the last day of the tax year (December 31 for individuals). If you were single on that day, you file as single (or head of household, if applicable) even if you are married when you file your tax return.

Whether you are considered married is determined by state law. The exception to this rule used to be single sex marriage which was not recognized by the federal government, but that changed as of June 26, 2015.

Congratulations on your upcoming marriage and good luck!

Like any good lawyer, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Taxpayer asks:

Hi There,

I am totally confused as to how we should file our taxes. By December 31st 2009 my husband and I had paperwork in the court in California that specifically states we are separated, a division of property and finances and an order for him to pay alimony. We have never lived together as the marriage failed on the honeymoon in 2008.
I have always lived in Colorado and have paid my own expenses entirely, including mortage and tuition.
I want to file single, but am not sure If we can.

Thanks,

Taxgirl says:

Filing status is determined by state law as of the last day of the tax year (December 31 for most taxpayers). I’m not sure what the rules are in California but if your state allows for a legal separation (and it sounds like it does from your comment about paperwork from court), and you are classified as legally separated, then you may file as single. If, however, your state does not offer legal separation, then you cannot file as single. You may only file as single if you are unmarried, divorce or legally separated.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl!Now on Facebook at http://www.facebook.com/taxgirl

Taxpayer asks:

If you are married and did not work, but your spouse earned $156,00, are you entitled to $800 credit or $400 for the working spouse?

Taxgirl says:

Your comma threw me – so I’ll answer it both ways.

If your spouse earned $15,600 and you file married jointly, you would be entitled to the $800 credit assuming that you otherwise qualify.

If, however, your spouse earned $156,000 and you file married jointly, you would not be entitled to the full credit. You’d be phased out to the tune of 2%. The phase-out works this way for married couples: subtract your qualifying income from $150,000 and multiply by 2%; subtract that amount from the full credit. If your income were $156,000, you’d have a credit of $680. Here’s the math:

$156,000 – $150,000 = $6,000

$6,000 x 2% = $120

$800 – $120 = $680

The result is that you’re totally phased out at $190,000 for married taxpayers filing jointly.

The key to remember is that the total credit for married credits is $800 irrespective of individual income. One quick caveat: if either spouse received an Economic Recovery Payment, you’ll deduct that amount from the full credit.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl!Now on Facebook at http://www.facebook.com/taxgirl