Married Filing Separately is = More Return?

[cantgrowone]

Hi. I might be crazy, but I wanted to check here before I submit my return. I'm using turbo tax and last night I went through and completed the process with Married filing jointly. This equated to us owing $4,000 to Fed and getting $1,800 from State. Tonight I went through and did Married filing seperately which came out to us saving $1,000. Is this normal?

Gross Income
Me (SS Wages): $107k
DW (SS Wages): $75k
Interest (1099-INT): $1,400

Mortgage Interest Paid (1098): $6,400
Charitable Giving: $15,800

Am I doing this right? I know we I need to modify my W-4 so this doesn't happen next year.

[johnny847]

Is that all that's on your tax returns? Under whose name is the mortgage? And who made the donations?

You're not by any chance claiming the full mortgage interest on both your and your wife's return when doing in MFS are you?


Assuming that there's nothing else on your tax returns, I can see how this would happen. Your itemized deductions add up to $22,200. The standard deduction for MFJ is $12,600, and your two exemptions are $8100 total. This means your itemization of deductions only decreases your taxable income over using the standard deduction by $1500 under MFJ. Your combined taxable income is 183,400-22200-4050*2 = 153,100, which results in $29611.58 of tax liability.

Using MFS, assuming all of the charitable giving and mortgage interest paid was done by you, your itemized deductions would total $22,200, decreasing your taxable income over using hte standard deduction by $15,900. Your taxable income would become $80750, resulting in a tax bill of $16102.75.

Your wife takes the standard deduction. Assuming all the interest was in her name, her taxable income would be $66,050, resulting in a tax liability of $12283.75.

So under MFJ, we have 29611.58. Under MFS, we have a total of 28386.5 The savings under MFS under my assumptions is $1225.08. I made assumptions that would maximize the difference.

EDIT: tl;dr: Generally speaking itemized deductions are one area where people experience the marriage penalty. If you're filing single, your itemized deductions only need to overcome the standard deduction $6300 (for 2016) for itemization to benefit you. But if you're filing MFJ, your total itemized deductions need to overcome the MFJ standard deduction $12,600. Furthermore, it's only the amount by which your itemized deductions exceed the standard deduction. If one person has most of the itemized deductions in their name and the other doesn't, then taxes will be higher filing MFJ.

P.S: Make sure filing MFS doesn't exclude you from these deductions. I know MFS excludes you from a lot of things.

[cantgrowone]

Is that all that's on your tax returns? Under whose name is the mortgage? And who made the donations?

You're not by any chance claiming the full mortgage interest on both your and your wife's return when doing in MFS are you?

The mortgage is in my name, and only claiming it on my return. $1,200 of the interest is in both our names with $200 in my name; I'll put $1,200 on DW to keep my income lower. All donations are under my name.

Thanks for the great reply! Your $1,200 is what turbo tax was saying we owe, woot. I'll have to comb through this when the beers wear off.

[johnny847]

Is that all that's on your tax returns? Under whose name is the mortgage? And who made the donations?

You're not by any chance claiming the full mortgage interest on both your and your wife's return when doing in MFS are you?

The mortgage is in my name, and only claiming it on my return. $1,200 of the interest is in both our names with $200 in my name; I'll put $1,200 on DW to keep my income lower. All donations are under my name.

Thanks for the great reply! Your $1,200 is what turbo tax was saying we owe, woot. I'll have to comb through this when the beers wear off.

I'd check the regs on this, but I'm pretty sure you can't do that. I'd assume you'd have to split the interest from joint accounts equally.

[johnny847]

Is that all that's on your tax returns? Under whose name is the mortgage? And who made the donations?

You're not by any chance claiming the full mortgage interest on both your and your wife's return when doing in MFS are you?

The mortgage is in my name, and only claiming it on my return. $1,200 of the interest is in both our names with $200 in my name; I'll put $1,200 on DW to keep my income lower. All donations are under my name.

Thanks for the great reply! Your $1,200 is what turbo tax was saying we owe, woot. I'll have to comb through this when the beers wear off.

I said the difference between MFJ and MFS was $1200, not that you owe $1200.

[secondcor521]

If you're filing MFS, you either both need to itemize or both take the standard deduction per:

http://www.sweetercpa.com/2015/01/19/im-married-file-jointly-separately/

"Additionally, both spouses must both itemize even if that means one party has an itemized deduction lower than the standard deduction to which they’d otherwise be entitled."

Also supported in statements online by the IRS and Intuit, makers of TurboTax.

[johnny847]

If you're filing MFS, you either both need to itemize or both take the standard deduction per:

http://www.sweetercpa.com/2015/01/19/im-married-file-jointly-separately/

"Additionally, both spouses must both itemize even if that means one party has an itemized deduction lower than the standard deduction to which they’d otherwise be entitled."

Also supported in statements online by the IRS and Intuit, makers of TurboTax.

Ah I should've known there'd be more snags with MFS. You do get excluded from many things with MFS.

[cantgrowone]

First things first thank you all for the great responses, and I deserve a punch in the face. If I would have maxed out my retirement account at work I would be getting a refund. My logic: 3 - 1 = 12a; I make box 1 = 3 - $10k and the numbers moved in my favor.

I misread on the $1,200 part, but it just so happens that $1,200 ($1,154) is the amount we fed own when MFS after our state refund.

After reviewing everything I think we're ready to file. There are many deductions not allowed for MFS, thankfully we cannot make use of those deductions. The 1099-INT are in my name and have my SSN on them so I kept them on my return. The info I found was that 'the IRS will expect it to show on the tax return of the person listed as the primary on that form.'

Below is an image of the federal tax breakdown. DW does not have the option to view this but, her state and fed equal out to +$56. Can you give me a sanity check? On both MFS returns there is no audit risk.

Me - Separately (click for bigger)


Jointly

[braje]

It you file MFS and Itemize your deductions, your DW has to itemize her deductions also, even if that deduction might be zero.

[Proud Foot]

Without being able to see the details for your wife it is hard to make the calculations.  Using assumptions based upon the differences in your two pictures (MFJ & MFS-Yours) I got a difference in the tax liability of $2 with MFJ being lower.  If you are using Turbo Tax to do this calculation I have no reason to believe it is not correct (I have never used TT) and there is additional information we do not know. My calculation did not account for state taxes.