If you have kids and a combined income in the neighborhood above $150,000, ask your tax preparer if you could save money by filing separately.
I recently wrote about the phenomenon of married taxpayers filing separately in order to avoid phaseout of recovery rebate and child credits. I picked up on the story by following #TaxTwitter, where tax pros go to commiserate. My sources on the tax press have confirmed my impression that this story has not garnered much coverage beyond the twitter action. Most disturbing was an unscientific survey I did. I will say that there are some pretty complicated computations. Complicated enough that I am not going to try to explain them in detail. But it is not rocket surgery and the reports I have gotten indicate that most software will split returns, although there will probably be some sort of futzing required beyond pushing a button. Robin and Terry have four kids. Blynn, the oldest, will turn 6 in 2022. Robin has a salary of $160,000 and Terry makes $70,000. Between shift work and help from parents their child care expenses are negligible. They don’t live in a community property state. By filing separately and giving all the dependents to Terry they will increase their aggregate credits by more than $10,000. Is that enough to make up for the host of disadvantages of filing separately? Brent Lipschultz of Eisner Advisory Group gave me an eloquent summary of the hurdles: Where the tax code may “giveth a certain benefit” to filing separately, so too, it can “taketh away”. For instance, the earned income tax credit, the educational tax credits, the child and dependent care tax credit, and the student loan interest are not available to those filing separately. By filing separately you are at the whim of your spouse if he or she takes the itemized deduction, you will have to itemize, which potentially forfeits a 12,550 deduction, if you have nothing to itemize.
