I represent taxpayers in Rochester New York. Often married taxpayers contact me when they receive notices from the IRS and / or the state stating they are both responsible for paying the taxes. They frequently say their accountant explained to them they would save money filing married filing joint vs married filing separately. They then follow it up with the accountant also told them if there is an issue the spouse could always file for innocent spouse relief.
Unfortunately, this maybe awful advice, and could make it much harder and more expensive to resolving the tax debts. Why?
Let’s look at a real-life example:
- Husband is self-employed, the wife left her corporate job to be a stay-at-home mom 5 years ago.
- The house they live in is hers, she inherited it from her mother, worth $275,000 without a mortgage.
- She has an IRA she rolled over from her 401-K with $350,000 in it.
- He owns his car outright and has a small IRA valued at $10,000.
Due to some horrible family situations, they have not filed a tax return in the past 4-years. Determined to correct the issue they visit their accountant to prepare the 4-years of returns, he tells them to file married filing joint and they will owe $125,000 to the IRS with penalties and interest.
They decide to talk to a tax resolution expert for a second opinion, and they are advised to file married-filing-separately.
The accountant notifies them that they will now owe $200,000, stating that they should file joint and save $75,000. But what the accountant has not thought about is her assets (the house and her IRA) will be used to full pay the tax bill. If they file separate the husbands tax liability will be $200,000, but he is a perfect offer in compromise candidate.
The take-away
The takeaway here is before you file back tax returns you need to take into account the tax liability and how it will be resolved. If the couple can easily full-pay the liability, then filing joint would probably save money. If not, then couples should seriously consider filing separate and saving one spouse from having his or her assets used to pay the tax debt.
If you or someone you know has a tax issue with the IRS feel free to contact me at (585) 210-7405 or Jason@585tax.com.
Jason Zukoski
Integrated Tax Resolutions / 585Tax
395 Helendale Rd.
Rochester, NY 14609
Ph. (585) 210-7405
jasonzukoski@integratedtaxresolutions.com
www.integratedtaxresolutions.com / www.585tax.com
Rochester, NY • Buffalo, NY • Syracuse, NY