Stimulus rebate w/a 1040X

[Jan S]

I have a new client who has not filed yet. Her husband filed MFS because he thought that was the best thing to do. Her only income is SS of $6,000, a $2,000 1099-R, $2100 in dividends and an $11,000 stock sale that will show a $3000 loss on Schedule D.

If she files MFS, she will not owe any money but will get her $300 stimulus check. I haven't seen the husbands paperwork, but he earned about $30,000 working in 2007 and does not receive SS benefits. He did not itemize.

Based on what I have been told, I want them to file MFJ so they can take full advantage of the Standard deduction and 2 exemptions. If her only tax return is the 1040X, will she still get her stimulus money? Or would I have to file a 1040 for her now and do the 1040X in a month or so. Depending on her husband's income, they may be entitled to $1200 instead of the $600 or $900 they may get by filing separately.

[Koss]

Amended Return

Based on the numbers you've described, it appears likely that the rebate generated by a joint return will indeed be greater than, or at least equal to, the rebate they would get by filing separately.

But it also sounds like the husband's tax liability would go down, perhaps significantly, if the file jointly. He's losing an exemption, and half the standard deduction.

If the joint return triggers taxation of some of her social security, it won't be much, especially once the capital loss is accounted for.

You'll have to try it both ways.

If you determine that a joint return is better all the way around, then just amend his return to change the filing status. Make sure his name and SSN are the primary taxpayer on the amended return. Get it in the mail as soon as possible. That way, hopefully the amended return will be processed before the IRS begins issuing rebates. The IRS should issue the rebate based on the amended return, if it is processed in time.

Filing a separate return for her with the intent of amending later will probably backfire. The rebates will be issued based on separate returns, and the IRS will not issue another rebate after processing the amended return. (Although they might pick up the remaining amount as a credit on the 2008 tax return.)