Do you know how some high powered people or celebrities file their taxes?
If you say, filing jointly as married couple, then that is an educated guess.
However, for some they choose to file separately. Why? Let’s find out.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Today, you will learn when to file or not to file separately.
Are you ready? Okay.
If you are married, you can elect to file separately at the end of the year.
What are the disadvantages of filing separately?
There’s a lot:
Unfavorable tax rates
You lose various credits
You lose education benefits
Greater chances that your social security will be taxable
IRA’s deductions and contributions phases out at $10,000 of your income
And lastly, your rental losses will be limited to $12,500
So with these disadvantages,
you might be thinking, why do people file separately?
Two reasons: Number one: you might pay less tax by filing separately.
For example, if your spouse has medical expenses or employee unreimbursed expenses,
you might pay less, since these deductions will be limited by the income of your spouse.
Number two: And this is a big one! No joint liability!
If you sign a joint return, you and your spouse is responsible for the payment of the tax.
If you file separately, then you are not responsible for reporting or paying taxes on items related to your spouse.
There you have it.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com