Tax planning- married filing seperately

[jIMOh]

I am doing some tax brainstorming. I am curious if anyone here has used itemized deductions and married filing seperately to get some tax breaks.

Here is the obvious one I found:

Both my wife and I work. I make significantly more than she does. If we funnel all health expenses thru her, we could deduct health expenses which are more than 10% of her AGI if we itemize and file seperately. Then apply the more common deductions (mortgage interest and property taxes) against the higher income.


ex: spouse 1 makes 80k
spouse 2 makes 50k after 401k and similar, AGI might be 40k
any health expenses larger than 4k could then be deducted. If filing jointly, the AGI would be around 100k and thehealth expenses greater than 10k could be deducted.

I am curious if anyone here has done this or thought about it. While working or while retired. I could see some good planning used when retired to have one spouse have low withdraws from retirement accounts and funnel as much of deductable expenses through their name (health expenses, real estate taxes, mortgage interest).

One disadvantage of doing this is both spouses would not be eligible for Roth IRA contributions.

 

[frayne]

Pretty easy to figure out, do your taxes both ways, MFJ and MFS and see which is the best. Ain't that hard to do and I'll bet you are better off married filing jointly.

 

[Martha]

Look at these IRS docs: Frequently Asked Questions - Keyword: Married Filing Separately and Publication 504 (2007), Divorced or Separated Individuals

Note that if one itemizes, the other also has to itemize. If you live in a community property state there are a bunch of issues.

Mathjak and his spouse, IIRC, filed separately so that only one spouse would get their income hit with AMT.

 

[OAG]

I am doing some tax brainstorming. I am curious if anyone here has used itemized deductions and married filing seperately to get some tax breaks.

Here is the obvious one I found:

Both my wife and I work. I make significantly more than she does. If we funnel all health expenses thru her, we could deduct health expenses which are more than 10% of her AGI if we itemize and file seperately. Then apply the more common deductions (mortgage interest and property taxes) against the higher income.


ex: spouse 1 makes 80k
spouse 2 makes 50k after 401k and similar, AGI might be 40k
any health expenses larger than 4k could then be deducted. If filing jointly, the AGI would be around 100k and thehealth expenses greater than 10k could be deducted.

I am curious if anyone here has done this or thought about it. While working or while retired. I could see some good planning used when retired to have one spouse have low withdraws from retirement accounts and funnel as much of deductable expenses through their name (health expenses, real estate taxes, mortgage interest).

One disadvantage of doing this is both spouses would not be eligible for Roth IRA contributions.

Just to nit pick it is 7.5% of AGI for Medical Deductions (but I think you will find if you file separately each would own their own medical deductions). However, why don't you download the FREE tax preparation program from TAXACT.COM and try out your questions. The 2008 program is available now although it is a planning program as you cannot use it to file your actual return (that version will be released in Jan 09). Should be able to answer the ROTH question.

 

[Martha]

(but I think you will find if you file separately each would own their own medical deductions).

From the IRS in the stuff I linked to above:


You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. If these expenses are paid from community funds, the deduction may depend on whether or not you live in a community property state. In a community property state, the deduction is, generally, divided equally between you and your spouse. For more information refer to Publication 504, Divorced or Separated Individuals; and Publication 555, Community Property.

 

[OAG]

Thanks Martha. I did say I "think" now I "know" - "It depends".

 

[Khan]

Thanks Martha. I did say I "think" now I "know" - "It depends".

I see you live in Ohio. A former coworker figured it both ways, and sometimes it was better to file separately given Ohio and Fed rules.

 

[OAG]

I see you live in Ohio. A former coworker figured it both ways, and sometimes it was better to file separately given Ohio and Fed rules.

Yes, when you have a state involved it can really get complicated. I have found with the high RE taxes in Franklin County (they load up all the "levies" that they can dream up) it pays to "double up" on the RE taxes so you can itemize in alternate years (as an example).

 

[jIMOh]

I see you live in Ohio. A former coworker figured it both ways, and sometimes it was better to file separately given Ohio and Fed rules.

Ohio does not have filing statuses, so the more you make, the more they take (state tax wise). If you file seperately the percentage used is much lower.

But if you file seperately, you cannot contribute to a Roth IRA either.

 

[OAG]

Ohio does not have filing statuses, so the more you make, the more they take (state tax wise). If you file seperately the percentage used is much lower.

But if you file seperately, you cannot contribute to a Roth IRA either.

Now you have created a real chore for Excel and I. I think there may be some financial benefit in your post, thanks.