MFJ vs MFS comparison form

[ADK2ATX]

Hi all,

If the MFJ vs MFS comparison form reveals that MFS would be the ideal filing status, is there a button in ATX that I can push to "rip" the MFJ return into two separate MFS returns?

Thanks  

[Yardley CPA]

1 hour ago, ADK2ATX said:

Hi all,

If the MFJ vs MFS comparison form reveals that MFS would be the ideal filing status, is there a button in ATX that I can push to "rip" the MFJ return into two separate MFS returns?

Thanks  

There may be, but I'm not aware of one.  I look forward to additional replies to this post to determine if there is.  

[Margaret CPA in OH]

It would be wonderful to have that in the program but then I think the program would cost much more.   What I have done for several years for a number of qualifying clients, is input all the data and code each amount F or S.  I sometimes use J or just half and half. Some J things are not allowed MFS.  When the comparison shows a clear advantage to MFS, I estimate the additional charge to do that as you then have to strip out one of them and create a second return.  Sometimes the tax savings isn't that great.

The clients that do benefit from this are mostly returning clients so I then rollover the MFS return of the S and strip out S data in the MFJ.  Clear as mud?  It is very important to make very sure that the combined numbers entered match those of the joint with only the tax calculation and disallowed items being different.

[Jack from Ohio]

12 hours ago, ADK2ATX said:

Hi all,

If the MFJ vs MFS comparison form reveals that MFS would be the ideal filing status, is there a button in ATX that I can push to "rip" the MFJ return into two separate MFS returns?

Thanks  

NO

[TAXMAN]

Just remember how you do the allocations and the projected cost of a second return plus the time spent dividing up deductions.

[ADK2ATX]

Thanks for all of your responses. 

Margaret, what trends have you seen that would set up clients for an advantageous MFS return?  For example, one high earning spouse and the other spouse was phased out of QBI deduction as a result?

9 hours ago, Margaret CPA in OH said:

It would be wonderful to have that in the program but then I think the program would cost much more.   What I have done for several years for a number of qualifying clients, is input all the data and code each amount F or S.  I sometimes use J or just half and half. Some J things are not allowed MFS.  When the comparison shows a clear advantage to MFS, I estimate the additional charge to do that as you then have to strip out one of them and create a second return.  Sometimes the tax savings isn't that great.

The clients that do benefit from this are mostly returning clients so I then rollover the MFS return of the S and strip out S data in the MFJ.  Clear as mud?  It is very important to make very sure that the combined numbers entered match those of the joint with only the tax calculation and disallowed items being different.

 

[Sara EA]

Another reason why we don't use ATX for our main program.  UT separates the returns and even automatically labels them SMITH TP and SMITH SP, but of course it costs a million dollars.  MFS works when there are significant medical expenses that can be attributed as paid by the lower earning spouse so that 7.5% ding isn't so awful.  Used to work sometimes when we still had the 2% AGI misc Sch A deduction.  In CT, the property tax credit essentially doubled if MFS. which sometimes offset higher federal taxes.  Now we have such a high standard deduction that many couples can't exceed it filing jointly but one may by filing separately and taking all the itemized deductions while the other takes the $12,200 standard.  In fact, that sounds like it might work for a lot of people and I should be running the optimization a lot more than I do.

[jklcpa]

Quack, quack. The program I use does the comparison and will split the returns. It doesn't cost a million and is less expensive than all but the most basic ATX version.

[Lion EA]

Sara, if one spouse itemizes while filing MFS, can the other really take the standard while MFS?

[Margaret CPA in OH]

ADK2ATX, it used to be fairly easy to spot the candidates before the increase in the federal standard deduction.  The Ohio tax regs often made the big difference but overall it was more advantageous when the earners were fairly equal.  I haven't yet seen a real trend for a couple of reasons: I have a very modest client list and most of them are single and/or the higher standard deductions have now made it moot.  But I still check to show those who ask but don't qualify.  The one couple I know will still qualify are a high earner with retired spouse with fair amounts of divs and cap gains. Another couple earn close to the same and saved only $419 filing separate but decided after my $150 upcharge they still wanted to file separately.  Hey, it was $150 saved!

Judy, 'quack, quack'?  I don't understand.

[Lion EA]

I've had a few with one spouse with large medical. And, I've had a few where one spouse made little enough income and could take just enough of the deductions to bring tax to zero/or a lower bracket, saving all the rest of the deductions for the higher earner. I don't expect to see many now with the higher standard deduction.

[FDNY]

What I do is duplicate the return and make all the adjustments.  Makes it fairly easy not having to input all the info twice.

[Gail in Virginia]

ProSeries will also split the returns. 

[Catherine]

We're actually seeing more returns that do better with MFS.  Younger couples with student loans, where the loan repayment amount is calculated on income, for one.  Filing separately the couple has a much lower annual payment required than when they file jointly.  (Yes, then they'll re-pay for longer - they can always pre-pay, and for a lot of these younger couples, cash flow is the driving force.)  Older couples with medical expenses higher for one person sometimes do better MFS.  Luckily with Drake it really is a click of a button (and some care, later, to make sure you are opening the right returns) to split them and get a comparison - although it's not perfect, as some of the little credits, like retirement savings credit, don't calculate properly on the one-click first pass.  

[Abby Normal]

I've never done a MFS, except for those occasional couples who keep everything separate, usually very rich, so I don't need a program to split it. Besides, I could split most returns in less than 20 minutes, and, as long as I'm getting paid for that, I'm good.

[jklcpa]

Abby Normal's post above shows why no program is a "one size fits all" for our practices. 

As well as checking for federal purposes, I check MFJ vs MFS for state purposes because I have PA residents working in DE and filing nonresident DE returns that allow the choice of joint or separate. With DE's graduated rate, the interplay with the credit back to other states, and splitting Sch A and other deductions, credits, exemptions, it's been extremely helpful to have the function built into the program that will efficiently and accurately create the split separate returns, and with my town being located right on the state line, I have a fair number of clients that are multistate where this may be of benefit. 

[Roberts]

Every MFS return I've done ended up with me getting yelled at eventually because they wanted it, didn't want to pay me and didn't consider the long term ramifications for why they were doing it.

 

In one case the husband made a TON of money and wanted to avoid paying his student loans but when the wife found out she was P.O.ed because the loans were the excuse for why they didn't have kids. If I were a betting man I'd bet they are divorced by now.

[Abby Normal]

5 hours ago, jklcpa said:

Abby Normal's post above shows why no program is a "one size fits all" for our practices. 

As well as checking for federal purposes, I check MFJ vs MFS for state purposes because I have PA residents working in DE and filing nonresident DE returns that allow the choice of joint or separate. With DE's graduated rate, the interplay with the credit back to other states, and splitting Sch A and other deductions, credits, exemptions, it's been extremely helpful to have the function built into the program that will efficiently and accurately create the split separate returns, and with my town being located right on the state line, I have a fair number of clients that are multistate where this may be of benefit. 

I used to file my MD residents with one spouse working in DE as separate for DE, until I realized that it only changed the allocation of state taxes between MD & DE. The total state tax paid remained the same, because MD was giving full credit for all taxes paid to DE. Life is easier now because no software I ever used would handle a separate return for only one of the taxpayers on a joint federal return.

[BulldogTom]

MFS doesn't work in CA for lowering student loan payments very often because it is a joint property state so you have to split the income equally.

[jklcpa]

3 hours ago, Abby Normal said:

I used to file my MD residents with one spouse working in DE as separate for DE, until I realized that it only changed the allocation of state taxes between MD & DE. The total state tax paid remained the same, because MD was giving full credit for all taxes paid to DE. Life is easier now because no software I ever used would handle a separate return for only one of the taxpayers on a joint federal return.

Right, and you also wouldn't have the credit affecting PA that my clients have because MD and PA have reciprocal agreements.  With PA having a flat tax of 3.07% and DE's top rate being higher and the fact that that rate is reached relatively quickly, it is entirely possible to help my clients lessen the overall state tax burden by filing MFS in DE and still getting the full credit that is allowed in PA.  

[jklcpa]

20 hours ago, Margaret CPA in OH said:

Judy, 'quack, quack'?  I don't understand.

A male duck is a drake...Drake software. 

[Sara EA]

You're right.  One spouse can't itemize while the other takes the standard.  Don't know what I was thinking.  I once asked some IRS agents who were students in one of my classes if the IRS actually checks to see if both spouses itemized or not, and they all did a good job of beating around the bush.

[Lion EA]

I think the IRS is waaay too understaffed to check that, and a lot of other things. But, WE all check. It's also mid-February, so we're all overwhelmed right now. I asked because I was genuinely worried that I missed something new in the SECURE Act, or whatever; wasn't trying to call you out.

(It just sunk into my head today that we can/have to compute kiddie tax under the TCJA rules AND under the SECURE rules to see which is best for each client. Luckily, my kiddies haven't come in, yet.)

[cl2019]

I am curious how accurate atx max's mfj vs. mfs analysis form is. e.g., foreign tax credit, how can you split the number between filer and spouse in the analysis form without going through the process of generating the credit for each one vs. for both. not to say, if clients have not done mfs filing last year, how can atx know how much ftc carryover from last year each one of the couple can enjoy. Does the analysis automatically generate the numbers by completing seperate 1116s vs joint 1116 behind the scene? 

Also, how do you guys deal with state mfj vs. mfs analysis? Need to duplicate the joint return and modify on each copy for filer and spouse seperate info.? How to generate a comparison summary for the analysis without same analysis form as federal return has.

Thank you!

[Lion EA]

I don't use ATX, but I do get warnings if a line wasn't computed. Sometimes, I forgot to label an entry T/S instead of J. But, sometimes it's telling me I have to compute that line. You do have to review the form. Do you know that T made all the payments on a J mortgage, for instance? Or, how can it assign the prior year CGCL without knowing whose investments generated the gain? You're the tax adviser and the tax preparer.

If you know the state(s) well on that return, you know when the federal results warrant looking at the state(s). With CT only, I seldom need to look very hard. For multi-state returns, especially including states like NY or CA that decoupled from federal law, I've done almost everything from printing a MFJ state copy (after I've completed the federal split for reference) and making margin notes plus checking the tax brackets all the way up to preparing the MFS states in my software completely before offering my clients the results and my fees, so they can make a fully-informed decision.

My software always includes the MFJ vs MFS. For the vast majority of my clients, it's overwhelmingly MFJ by thousands or tens of thousands of dollars, so I don't even look at CT or even NY unless my client has asked for a complete analysis.

You get a feel for what tweaks you can and can't make to federal, what could change your state(s), how big the difference needs to be so you can charge for your work, etc. Review a few MFJ vs MFS forms to get a feel for how to work with them. Then look at your home state to see how much of a difference it can make, or not.