We frequently have taxpayers in Stamford, CT contact us for help because they have filed several years of missing tax returns (on the advice of their preparer) jointly, and now the IRS collection division is pursuing them and their spouse.
I will be the first to agree that, in most cases, filing a joint tax return with your spouse can save federal taxes. There are some instances, however, in which you DO NOT WANT TO FILE A JOINT RETURN!
A real life example that came into our office was the following: husband was self-employed and wife was a stay-at-home mom. The couple had not filed tax returns for 6 years. They owned their home, in which they had $160,000 of equity, and the wife had an IRA she had put away when she worked before they had children with $120,000 in it. When contacted about their missing returns by the IRS they went to a CPA who had them file joint tax returns. With interest and penalties they owed $322,000 to the IRS.
I questioned why the CPA had them file joint tax returns, and he told me that by doing so they saved $57,000. I explained that, by having them file jointly, the wife was now liable for the taxes. The CPA did not save them $57,000 but actually cost the wife $200,000: her ½ of the equity in the home and her IRA, both of which would be deemed available by the IRS to pay the outstanding federal tax liability.
If you can file and pay the tax, then filing jointly is almost certainly the best choice from an economic perspective. However, if after the returns are filed the liability is too large to pay, you are probably better off filing as “married filing separately” and keeping one spouse (and their assets) out of the tax problem, even if it increases the liability.
When in doubt, file separately, because you can always elect later to amend the returns with the IRS and file jointly. Once you file jointly, you cannot elect out of the joint liability and will be stuck. If you have any questions please feel free to contact me to discuss the situation BEFORE YOU FILE!
Eric L. Green, Esq.
Convicer, Percy & Green, LLP
60 Long Ridge Rd., Suite 202
Stamford, CT 06902
Ph. (203) 602-5550
Fax (203) 286-1311