Filing Status help

[MariaR08]

Some advice here...

I have a new client for which I'm preparing their tax return for. He is married but will be filing Married filing separately. We need to verify his stimulus payment he received in 2008 and so we went to irs.gov. Since we had to put in his filing status as verification... I know learned he filed Single last year (he was supposed to file Married filing separetly).

What could be any consequences of this?

Thanks,
Maria

[Corduroy Frog]

May not know

If this is a new client, his former preparer may have decided he qualified to file single, and did so to lower his taxes. One thing I have learned to ponder with a new client is what his relationship was with his previous preparer. Who knows whether the preparer adequately explained filing status to him, and if so, whether he listened. Or he could be lying outright.

The stimulus was for 2008 based on his 2007 tax return. His 2007 return will dictate how much stimulus he was entitled to. He should bring you his 2007 return, and you can determine what his stimulus payment should have been. There is no downside to this, because if he was underpaid you can file for the difference in 2008. Conversely, if he was overpaid, there is no requirement to pay it back.

[Koss]

Agree

You should definitely review the 2007 tax return, and you should try to look up the amount of his stimulus payment on the IRS website.

With a filing status of single on the 2007 return, if he had any significant tax liability, his stimulus payment would have been $600. If he had little or no tax liability, then his stimulus payment would have been $300. Unless he had kids.

Whatever he actually received as a stimulus payment is what you use in the worksheet calculations on the 2008 return. The fact that his filing status may have been incorrect is irrelevant.

He may or may not need to file an amended return. The so-called "marriage penalty" has been largely eliminated. The standard deduction, as well as the tax rates, are the same for single and MFS--in most cases.

That doesn't mean you can just use single instead of MFS. If it's the wrong filing status, it shouldn't be used. But you may find that changing his filing status for 2007 (on an amended return) does not change his tax liability.

But there are other issues that need to be looked at. For example, did his wife itemize? Or did he claim an IRA deduction that might have been different if he had used the correct filing status? Or... taxable social security benefits? There's a lot of stuff that can be impacted by MFS.

But even if you file an amended return, and wait for it to be processed by the IRS, it's not going to change the amount of the stimulus payment that he actually received. Whatever you do as far as correcting 2007 will not have any meaningful impact on the 2008 return.

BMK

[MariaR08]

Thanks for the great responses! Appreciate it!

~Maria