Married couples often wonder whether they should file joint or separate tax returns. The answer depends on your individual tax situation.

It generally depends on which filing status results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. This means that the IRS can come after either of you to collect the full amount.

Although there are provisions in the law that offer relief, they have limitations. Therefore, even if a joint return results in less tax, you may want to file separately if you want to only be responsible for your own tax.

In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of taxable income and the other has just $15,000, filing jointly instead of separately can save $2,512.50 for 2020.

Filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. They’re less favorable than the single rates.

However, there are cases when people save tax by filing separately. For example:

One spouse has significant medical expenses. For 2019 and 2020, medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in larger total deductions.

Some tax breaks are only available on a joint return. The child and dependent care credit, adoption expense credit, American Opportunity tax credit and Lifetime Learning credit are only available to married couples on joint returns. And you can’t take the credit for the elderly or the disabled if you file separately unless you and your spouse lived apart for the entire year. You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer retirement plan and you file separate returns. You also can’t exclude adoption assistance payments or interest income from series EE or Series I savings bonds used for higher education expenses.

Social Security benefits may be taxed more. Benefits are tax-free if your “provisional income” (AGI with certain modifications plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return, but zero on separate return (or $25,000 if the spouses didn’t live together for the whole year).

No hard and fast rules

The decision you make on your federal tax return may affect your state or local income tax bill, so the total tax impact should be compared. There’s often no simple answer to whether a couple should file separate returns. A number of factors must be examined. We can look at your tax bill jointly and separately. Contact us to prepare your return or if you have any questions.

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Nearly everyone has heard about the Economic Impact Payments (EIPs) that the federal government is sending to help mitigate the effects of the coronavirus (COVID-19) pandemic. The IRS reports that in the first four weeks of the program, 130 million individuals received payments worth more than $200 billion.

However, some people are still waiting for a payment. And others received an EIP but it was less than what they were expecting. Here are some answers why this might have happened.

Basic amounts

If you’re under a certain adjusted gross income (AGI) threshold, you’re generally eligible for the full $1,200 ($2,400 for married couples filing jointly). In addition, if you have a “qualifying child,” you’re eligible for an additional $500.

Here are some of the reasons why you may receive less:

Your child isn’t eligible. Only children eligible for the Child Tax Credit qualify for the additional $500 per child. That means you must generally be related to the child, live with them more than half the year and provide at least half of their support. A qualifying child must be a U.S. citizen, permanent resident or other qualifying resident alien; be under the age of 17 at the end of the year for the tax return on which the IRS bases the payment; and have a Social Security number or Adoption Taxpayer Identification Number.

Note: A dependent college student doesn’t qualify for an EIP, and even if their parents may claim him or her as a dependent, the student normally won’t qualify for the additional $500.

You make too much money. You’re eligible for a full EIP if your AGI is up to: $75,000 for individuals, $112,500 for head of household filers and $150,000 for married couples filing jointly. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$112,500/$150,000 thresholds.

You’re eligible for a reduced payment if your AGI is between: $75,000 and $99,000 for an individual; $112,500 and $136,500 for a head of household; and $150,000 and $198,000 for married couples filing jointly. Filers with income exceeding those amounts with no children aren’t eligible and won’t receive payments.

You have some debts. The EIP is offset by past-due child support. And it may be reduced by garnishments from creditors. Federal tax refunds, including EIPs, aren’t protected from garnishment by creditors under federal law once the proceeds are deposited into a bank account.

If you receive an incorrect amount

These are only a few of the reasons why an EIP might be less than you expected. If you receive an incorrect amount and you meet the criteria to receive more, you may qualify to receive an additional amount early next year when you file your 2020 federal tax return. We can evaluate your situation when we prepare your return. And if you’re still waiting for a payment, be aware that the IRS is still mailing out paper EIPs and announced that they’ll continue to go out over the next few months.

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The novel coronavirus (COVID-19) crisis has put enormous financial stress on many not-for-profits — whether they’re temporarily shut down or actively fighting the pandemic. If cash flow has dried up, your organization may need to do more than trim expenses. Here’s how to assess your financial condition and take appropriate action.

Put your board in charge

Ask your board of directors to lead your review and retrenchment efforts. In addition to having oversight experience and financial expertise, board members have a passion for your organization and will do whatever they can to assist. They may already have employer backing for your nonprofit, and those companies may be willing to step up their financial support. Or board members may be able to tap their social networks.

The first order of business should be to review programs relative to your nonprofit’s mission. If you identify one that isn’t critical to your mission and is a drain on cash balances and staff resources, consider cutting it. Terminating a non-mission-critical program frees up funds for other initiatives or administrative necessities. If you can redirect clients to similar programs offered by other organizations, such changes can be made without a break in service.

Your board may also be able to liberate cash from your investment portfolio. Your nonprofit may have investments or idle assets that aren’t generating operating income — for example, donated real estate, collections and other nonmarketable holdings. Divesting these possessions can raise critical operating funds.

Look to your endowment

Another potential source of operating funds is your organization’s permanently restricted endowment funds. Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), you may be able to spend what was once considered the untouchable original principal (or historical balance) of funds.

Access generally is available when the donor of the original gift is silent about restrictions or hasn’t specified that UPMIFA provisions don’t apply. In some cases, an original condition or restriction may no longer be practicable or possible to achieve. Your nonprofit should consult an attorney to learn whether this is an option.

If UPMIFA provisions don’t open up a source of funds, there’s another potential route — approach the original donor. Your organization can ask the donor to lift all or some of the spending restrictions so you may use a portion of the funds for operating costs.

We can help

These are only a few possible solutions for struggling nonprofits. If you know your nonprofit is in trouble, but don’t know how to start fixing it, contact us. We can work with your board to assess your situation and determine the best way to move forward.

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