Should my wife and I (with drastically different incomes ) file taxes together or seperate?

January 29, 2007 9:00 PM

TaxFilter: My wife and I have drastically different incomes. She made about $45K this year and I only made about $15K, mostly from freelance gigs, so no taxes were paid. Should we file jointly or married but filing separately?

I have my own business so I have deductions for travel and some equipment purchases. However, my income is so low I am not sure if they will matter much.

So is it better if we use my income to drag down the average between us or should I file myself since I basically have paid almost no taxes?

The only job that has taken out taxes for me is a consulting firm that took $400 in Federal Income and $415 in social security tax on $6700 in income. So that leaves almost $10K with no tax paid.

I should also mention I recently moved to NJ so basically no state tax was taken out at all (I think I have paid about $20 in state income tax from a part time hourly job in Dec). However, my car and drivers license are still based in Florida, but my address I will be filing the insurance will be NJ. How does this affect things?

posted by anonymous to work & money (15 answers total)

Get tax forms from your local libary (or post office) for free, and figure them both ways (married filing jointy and married filing separately) and decide which way benefits you the most.
posted by amyms at 9:08 PM on January 29, 2007

You really should ask an accountant.
posted by dirtynumbangelboy at 9:08 PM on January 29, 2007

"I should also mention I recently moved to NJ so basically no state tax was taken out at all (I think I have paid about $20 in state income tax from a part time hourly job in Dec). However, my car and drivers license are still based in Florida, but my address I will be filing the insurance will be NJ. How does this affect things?"

One way it may effect you is that you may have to file both NJ and Florida returns as a domiciliary resident of Florida.

It doesn't neccesarily mean you'll end up paying double tax. I just finished my taxes about half an hour ago. The my VA return (sold my car and changed my drivers license to the new state in May, though I physically moved in February 2005) was 15 pages long, including copies of both my NY and federal returns.

I ended up not paying an extra taxes to VA, but it took me an hour and a half more after I had figured the federal and state taxes.
posted by Jahaza at 9:53 PM on January 29, 2007

Since Florida has no state income tax, I think your concern here is whether NJ will try and stick you for a tax bill for the entire year, if you file as a NJ resident. You can probably file a return as a part-year resident in NJ. You should only be liable for state income tax for the period of time you lived in NJ.

As for your other question, the easiest thing to do is to run the numbers through a web-based program such as TurboTax or H&R Block's tax program. Unless they have changed things since the last time I used either, they do not charge you until you actually file, so you can run the numbers with both scenarios (married filing separately vs. married filing jointly) and see which gives you the least tax liability.

In my personal experience, filing separately with disparate incomes such as yours generally results in a higher tax liability. I am not an accountant, just someone who got sucker-punched by the IRS once.
posted by bedhead at 10:21 PM on January 29, 2007

You can probably file a return as a part-year resident in NJ.

You can, in fact, do this. I know the NJ1040-NR (nonresident form) lets you do it, and I think you have to pro-rate your deductions and everything else on a monthly basis or something like that, but I don't know if it's the right form if you are a resident at year's end. Since you've made over $10,000 this year, you may have some tax liability in NJ.

As far as I know, Florida has no personal income tax return, since we have no personal income tax; until I started university, I didn't know there was an income tax assessed by anyone other than the IRS. (Yeah, I was somewhat sheltered.)
posted by oaf at 11:23 PM on January 29, 2007

OK, I just looked, and the instructions for the NJ-1040-NR say to file NJ-1040 if you were a New Jersey resident for part of the year.

If you spent less than 30 days in New Jersey last year, you may be able to file as a nonresident. Do check with someone who actually knows what they're doing in your situation, though.
posted by oaf at 11:26 PM on January 29, 2007

So is it better if we use my income to drag down the average between us or should I file myself since I basically have paid almost no taxes?

IANAA, but I would say it's probably better to file jointly because the income brackets are wider for married-filing-jointly. (scroll down to #4. )
The easiest way to find out for "sure", though, is to actually run the numbers for both.

This is what the IRS site has to say about jointly vs. separately.
posted by sleeplessunderwater at 11:42 PM on January 29, 2007

(And "sure" is in quotes because the tax code is complex and to be really sure, you'd probably need to hire an accountant to run the numbers.)
posted by sleeplessunderwater at 11:44 PM on January 29, 2007

Dirtynumbangelboy got it in one. With taxes as complicated as yours the accountant will save you (possibly quite a lot of) money and give you piece of mind.

I was a freelancer and did my own taxes for a long time. Thought I was getting very good at it. The first year I went to an accountant I saved close to $8,000.

Do it today. Next week they're going to be more busy.
posted by Ookseer at 11:46 PM on January 29, 2007

The money you spend on a tax agent is deductible on next year's income. It's totally worth it.
posted by Wolof at 3:10 AM on January 30, 2007

Just so you know: the "married filing separately" designation is always worse than any other designation. There is no circumstance under which you would want to file that way. (The only reason it is used: your spouse hates you.)

So the answer is, you should file as married filing jointly.

Most tax questions aren't as easy to answer as this one, though. The usual answer is "do it both ways, and figure out which one comes out better".
posted by jellicle at 5:26 AM on January 30, 2007

Always, always file jointly.
posted by Saucy Intruder at 9:49 AM on January 30, 2007

My understanding is that if you file jointly you can't go back to filing separately. You can call the IRS 800 number to confirm or deny that though - I don't know much about individual tax return procedure.
posted by lorrer at 10:37 AM on January 30, 2007

Married Filing Separately ALWAYS costs more than Married Filing Jointly.
posted by KRS at 12:12 PM on January 30, 2007

I was under the impression when one spouse had no tax deductions, therefore would take the standard deduction, and the other spouse had a lot, say a business owner, you should look at what the difference was between the two, as filing separately could result in a lower bill. I thought this scenario also involved both spouses being in the same tax bracket. The AMT is involved too, although I don't remember how.

Does anyone know what article I read this from? I can't find it by googling. Anyhow, this was presented as "The only scenario that might ever make sense if you're not legally separated", so I'm pretty sure this guy doesn't fit that scenario at least.

Also, what tax you've already paid is only confusing the issue you are really considering: How much tax *should* I have paid for the year. It doesn't matter how much you have (generally speaking, sometimes it does).

IANAA,

Michael

posted by gte910h at 7:03 AM on January 31, 2007