Articles tagged with: Tax Season

Should You File Jointly, Or Not?

For many married couples, filing jointly is a good idea, but there are exceptions.

Ninety-five percent of married couples file joint federal tax returns. Filing jointly can be convenient. Frequently, there’s a financial advantage, but that does not mean it should be done without consideration.1

Years ago, there was less incentive to file jointly. That was because the “marriage penalty” for doing so was effectively greater. There is no written “marriage penalty” in the Internal Revenue Code, but, in the past, income tax brackets were structured a bit differently and spouses having similar annual incomes sometimes paid more taxes by filing jointly than single taxpayers did.

There are many good reasons to file jointly. Nearly all of them involve saving money.

Joint filing may give you an effective tax break right off the bat. Currently, married taxpayers who file separately face the 28%, 33%, 35%, and 39.6% income tax brackets at lower income thresholds than other unmarried taxpayers.2

Joint filers can claim significant tax credits that marrieds filing separately cannot. If you want to claim the American Opportunity Tax Credit, the Lifetime Learning Credit, the Elderly or Disabled Credit, or the Earned Income Tax Credit (EITC), you have to file jointly. Joint filing also gives you the potential to claim the full Child Tax Credit, rather than a reduced one.3

Deductions, too, decrease when you file separately as a married couple. Standard deductions fall significantly. Phase-out ranges affect itemized deductions, and some itemized deductions are unavailable for married couples who do not file jointly. Couples who file separate 1040s can only deduct 50% of the capital gains losses joint filers can. In addition, if one spouse elects to itemize deductions, so must the other (there must be a separate Schedule A for each spouse). The spouse with fewer deductions has no ability to use the standard deduction to lower his or her taxable income.2,3

Joint filing even helps you with regard to the Alternative Minimum Tax. When you file separately as a married couple, your AMT exemption falls by 50%. So you may be more susceptible to the AMT if you file separately. If the AMT affects you, you will find many federal tax deductions reduced or unavailable to you.3

Do you live in a community property state? If you do, you may know that state tax law defines what is considered separately held or jointly held property. If you want to itemize deductions in a community property state, the paperwork can be onerous.3

More of your Social Security benefits may be taxed if you file separately. Social Security gives you a “base exemption,” an income threshold above which Social Security benefits may be taxable. The base exemption for married couples filing jointly is $32,000, meaning that if 50% of the Social Security benefits you receive in a tax year plus your other income in a tax year exceeds $32,000, taxes may apply. The base exemption for married couples filing separately who live together at any time during the tax year is $0. It improves to $25,000 for married couples filing separately who live apart for an entire year.4

So why would you not file jointly when married? In certain circumstances, filing separately may be wiser.

Maybe you do not trust your spouse financially. If your spouse is a tax cheat or interprets federal tax law very loosely, filing jointly could prove hazardous in the case of an audit or other troubles. Both spouses must sign a joint return, meaning that both spouses are legally responsible for all taxes, penalties, and fines linked to that return. Yes, an innocent spouse may be offered tax protection by the IRS, but that innocence must be proven.2,3

Maybe you or your spouse have large out-of-pocket medical expenses. If so, and if the spouse contending with such bills earns much less than the other, there may be merit in filing separately. By doing so, the spouse with far less income might have an opportunity to meet the 10% AGI threshold needed to itemize medical expenses. (The 7.5% AGI threshold for itemizing these costs is still in place for taxpayers age 65 and older.)2

Maybe you are separating or divorcing. If that is the case, then it may seem only natural to begin filing separately while still married. Doing so now may lessen the chance of the two of you wading through tax issues in the aftermath of a split.

If you are unsure about whether to file jointly or singly, you can ask a tax professional for his or her opinion. Or, that professional can look at last year’s return and run the numbers for you. Most couples find that filing jointly works out best, but there are exceptions.

Mike Moffitt may be reached at phone# 641-464-2248 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – forbes.com/sites/robertwood/2016/01/26/married-filing-joint-tax-returns-irs-helps-some-couples-with-offshore-accounts/ [2/6/16]
2 – abcnews.go.com/Business/filing-taxes-jointly-good-idea/story?id=22504248 [2/17/14]
3 – foxbusiness.com/features/2015/03/06/should-couples-file-taxes-separately-or-jointly-which-is-best-for.html [3/6/15]
4 – irs.com/articles/how-are-social-security-benefits-taxed [2/11/16]

Tax Season Phone Scams

Beware of crooks calling you up & claiming to be the IRS.

Every year, con artists posing as the Internal Revenue Service perpetrate scams on taxpayers. Their weapon is a telephone, and they use it to leave thousands of households poorer. These gambits can seem very convincing, but you need not fall prey to them if you are informed.

The IRS will never call you up & demand money. Nor will the IRS contact you by phone to discuss your refund. In addition, it will not use social media, text messages or emails out of the blue to talk about tax matters with you.1

Not everyone knows this, and these criminals exploit that fact. In particular, these crooks target immigrants and elders. They presume that these demographic groups do not understand tax law and tax collection proceedings as well as others. Sometimes the caller ID will even suggest the “IRS” to further the scam.1

Since December 2013, federal investigators have detected about 290,000 fraudulent IRS calls made to homes and businesses. About 3,000 people succumbed to these scams during that period, forking over a total of $14 million in “back taxes” – roughly $5,000 per taxpayer.2

What are the telltale signs of a bogus IRS call? The classic sign is the demand for an immediate payment of “taxes” when no bill for delinquent taxes has been sent to you by the IRS to begin with. The IRS nearly always makes initial contact with taxpayers by mail.2

Another common move is asking for a credit or debit card number. In one common scam, the caller alleges that you have unpaid back taxes that can only be settled by buying a prepaid debit card (and by supplying the card number to the caller).1

Bullying is another red flag. In another prevalent scam, a message may be left saying that this is a “final notice from the Internal Revenue Service” and tell you that the IRS is filing a lawsuit against you on a business or personal tax issue. Threats of arrest, deportation or losing your driver’s license may be made. The caller may also tell you that you have no way to appeal, no chance to plead innocence – you are guilty and must pay taxes owed now.1,2

How can you report frauds like this? If you know for a fact that you do not owe any back taxes, call up the office of the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484 and report what happened to you. (TIGTA is on the Web at tigta.gov.) Alternately, go to FTC Complaint Assistant website maintained by the Federal Trade Commission (FTC) and file a complaint there (click on “Other” in the right-side menu, and then click on “Imposter Scams”). Start your notes with the phrase “IRS Telephone Scam.”1

If you think you actually might owe some back taxes, call the IRS instead at IRS at 1-800-829-1040 as that really should be resolved; IRS staffers can assist you with such a matter.1

Watch out for these crooks, and let others know about their tactics so that they may avoid becoming victims.

Mike Moffitt may be reached at ph. 641-782-5577 or email:  mikem@cfgiowa.com

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – irs.gov/uac/Newsroom/Scam-Phone-Calls-Continue;-IRS-Identifies-Five-Easy-Ways-to-Spot-Suspicious-Calls [10/29/14]

2 – cleveland.com/business/index.ssf/2015/01/nearly_3000_people_in_us_have.html [1/23/15]