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Deductions for Married Filing Separately?

(This relates to Federal and California income taxes.)

BACKGROUND: Couple has lived in California all the time they have been married, over 10 years. Each has income independently of the other. They have a pre-nuptial agreement to keep all their finances separate. Although they have not lived together for the last few years, they are still legally married. They have always filed Married Filing Separately. Every year to date they have both filed using the Standard Deduction, or both have itemized their deductions. At this time one of them wants to use the Standard Deduction and the other wants to itemize.

QUESTIONS: Is there a legal way for them to do this?

If there is no legal option, what are the typical penalties if they do not both file the same way?

Other observations/recommendations appreciated.

Reply to
CWLee
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No.

First, the IRS will disallow the standard deduction for the spouse who attempted to take the standard deduction. Then the IRS will recompute the tax based on that zero standard deduction. Then the IRS will issue a bill for the tax due and charge interest on the unpaid tax. The taxpayer will then have to pay the tax or else suffer the consequences of not paying one's taxes.

At that point the spouse who attempted to take the std ded should amend the return to take whatever itemized deductions s/he is entitled to to minimize the taxes owed.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Reply to
Rich Carreiro

No.

The tax authorities (IRS & CA FTB) will disallow the standard deduction to the spouse who used it. If one spouse itemizes, the other must also itemize.

Reply to
Alan

no

What does the prenup say? I doubt it covers this situation. But, what would it say if it had proper foresight? Standard deduction is $5700 Fed and $3637 Calif (2009, MFS). The loss of the standard deduction is (roughly, assuming tax brackets and likely ignoring some other implications) a maximum of:

$5700 x 28% = $1596 $3637 x 9.55% = $347 total = $1943.

the spouse itemizing can gift to the other some or all of the $1943 and call it even.

Of course, this loss will be less if there are some things to itemize, rather than zero itemizations, so recalculate as you wish.

Reply to
Wallace

As the OP I'd like to thank all three who provided responses.

Related somewhat to this topic, and which had fueled my hope for a legal method, is the fact that there are at least two instances of the Fed's making a tax distinction between married couples who live together, and those who live separately.

The first is related to the amount of Social Security benefits which must be included in income. A note at the top of the worksheet on page 28 of "1040 Forms and Instructions 2009", and line 10, both indicate a distinction between those who lived apart from their spouse for the entire year, and those who did not.

Second is the threshold for the income-related surtax for Medicare recipients. Those who provide the Social Security Administration with a copy of their tax return, showing a filing status of "married, filing separately", and who sign a statement saying that they lived apart for the entire year, have a lower threshold for the surtax.

Thanks again, and best regards to all.

Reply to
CWLee

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