Part of my job is to constantly evaluate strategies to save you tax. Today I will review the joint vs. separate filing status for California taxpayers.
Although most taxpayers that are married file joint tax returns, there are cases where filing separately may actually lead to thousands of dollars (or even tens of thousands) in tax savings. In one recent example, we had a joint tax return filing that resulted in $23 thousand in tax savings by being split up & redone as two separate returns.
How do I know which version is better? The only way to truly know is to “mock up” your returns both ways. There are online tax calculators that attempt to automate this, however, we have tested over a dozen of them, and they were not accurate. The lack of accuracy was not due to the tax calculators’ “fault;” they really do try to help. The issue is that these calculators use an oversimplification of the clients’ information. However, there are so many thresholds, rules, and components to a joint filing that it is not possible to be accurate unless one really works through the returns and optimizes each component in detail. So, this is something that must be computed.
Creating an analysis of married filing jointly vs. separately is best done using the following strategy:
–Create tax returns for spouse 1 as separate
–Create tax returns for spouse 2 as separate
–Create joint tax returns
–Compare the results in a table & the answer on the most beneficial outcome will be clear
This requires one to effectively work through 3 tax returns & the answer will then be clear in black and white. Of course, since running this projection requires quite a bit of work, most tax practitioners would not accommodate that level of detailed scenario testing analysis during peak filing season (Jan to April). If you are interested in planning this out, we must get started as soon as possible.
For help with this or anything else, just hit “Contact” below and let me know.
George Dimov, CPA
Licensed and Insured
(833) 829-1120 Toll Free
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