Sometimes, the Universe seems to gently nudge us in the direction it wants us to go. Like, if a flat tire kept you from attending a party where everyone got Salmonella, you’d say, “Whew! The Universe looked out for me.” Whether the Universe was playing favorites or not, you avoided four straight days in the bathroom, so the end result is the same.
Since the IRS might have an inflated view of itself, it engages in these same practices. For example, the IRS insists that citizens who make their money illegally must report it on their returns. The IRS even offers a vague assurance that it won’t tip off other enforcement authorities. More importantly, it’s insinuated that, no matter how tough the DEA is, the IRS bites harder – so be honest, outlaws!
There is no clearer example of the IRS sheepherding us through the corrals of taxes than filing status. If one chooses to file married and jointly, there are a ton of free prizes involved. However, the lack of free prizes associated with married filing separately almost seems like a punishment. Is this because the IRS is lazy and would prefer to process only one return per couple? Is it because the IRS is playing marriage counselor? Either way, separately filing lovebirds get the short end of the stick.
If you’re going through a messy divorce, you’d rather not meet with a Bourke Accounting pro in the same room as that cheating so-and-so. In fact, you’d prefer to forget the whole failed marriage and move on. Obviously, the IRS designed the filing separately option for events such as that. Another motivation not to file with your spouse is if you think the love of your life might be up to some shady dealings. If there’s a suspicion of tax evasion, it will benefit you to steer clear of that return and not be associated with criminality (Investopedia.com). Of course, if you don’t trust your spouse enough to file with her/him, you probably need to reevaluate the relationship.
What about if you’re just an independent person who likes to handle things on your own? That’s cool, but, again, don’t expect the Feds to reward your autonomy. While joint filers are eligible for credits and breaks, separate folks really are left out. For example, the Earned Income Tax Credit is a benefit designed to help working stiffs who aren’t reality tv host “billionaires”. If you meet the requirements, this will reduce the amount of tax owed and might score you a refund. To be eligible to receive this credit, you can file as any status, except – you guessed it – married filing separately. Although you don’t need a child to use this credit, you do need another human being willing to go halfsies on a return with you.
Another example of the IRS’ questionable rule-making is the Premium Tax Credit. This is another program for hard-working folks and it helps people to afford health insurance bought through the Health Insurance Marketplace. When you get your insurance, the Marketplace can either figure out an estimated credit paid to the insurance company to lower your monthly premiums or you can “get all of the benefit of the credit” (IRS.gov) when you file your return. What’s great about this is that if the amount of the credit is larger than what you own in taxes, the difference is a pretty little refund. Everyone’s happy! Everyone but those poor, ignored married citizens with only one name on their 1040.
Perhaps the IRS thinks there is something inherently dishonest about married filing separately filers. Obviously, if your SO makes a million a year and you only make 15 grand, you don’t need help with insurance. Since the IRS doesn’t trust us to voluntarily play by the rules, a little nudge makes everyone honest.
Your Bourke Accounting tax preparer can help you decide which filing status is ideal for you. Bourke Accounting pros can explain the drawbacks and advantages involved and offer your best bet. At Bourke Accounting, understanding your options and making an informed decision is the most important aspect.
Written by Sue H.