JOINT VS SEPARATE – THAT IS THE QUESTION

This past tax filing season I found that filing separate returns often put more money in the pockets of my married clients than in past years.

While usually in most cases filing separately would provide the same or more federal income tax, or only slightly less federal income tax, than filing a joint Form 1040 (or 1040-SR), the new refundable Recovery Rebate Credit, resulting from reconciling the first two economic stimulus payments, calculated based on 2018 or 2019 income, to the actual amount to which a taxpayer or couple was actually entitled to based on 2020 AGI, created a greater net combined federal refund or less net combined federal tax due on separate returns. 

On a joint return a combined AGI of over $150,000 would reduce and eventually eliminate one or both of the stimulus payments – but if one spouse had an AGI of less than $75,000 on their separate return they could get the full $1,200 and $600, plus any additional amount for applicable dependents, less the amount, if anything, they actually received, as a refundable credit.

However, the biggest tax savings this year came from filing separate state tax returns – especially for residents of the Garden State.  Over the years I have found that filing separate NJ state income tax returns could result in substantial state tax savings.  This is because of the way the different tax tables for Single or Married Filing Separately taxpayers and Married filers or Heads of Households are constructed.

In two separate occasions this year filing separate NJ-1040s saved my clients between $1,600 and $1,800 in NJ state income tax!

How was this possible?  I am not going to tell you here.  I realize it is selfish, but if you want to find out how I saved my clients so much money you will have to purchase my book THE JOY OF AVOIDING NEW JERSEY TAXES (updated for 2020) – the only book in existence I know of that discusses in detail tax planning for and preparation of the NJ-1040.  In it I reveal how my clients were able to save so much.  Click here to learn about this book and how to order it.  

Please note the e-book version for Kindle has not yet been updated for 2020.  For now, to read about the $1,600 - $1,800 in savings you must get the pdf or print version.

Unfortunately, you cannot file an amended return to change your filing status from joint to separate after the initial due date for that return has passed - so you cannot change your already filed 2020 joint return to separate filings.  But if you submitted an extension for your 2020 return you can still file separate 2020 returns.

The bottom line of this post is this – when preparing your income tax return, or having it prepared, compare, or request that your tax preparer compare, filing a joint return to filing separate returns.  You, and your tax pro, might be surprised.

TTFN