Ep. 135 | Love, Taxes, and Filing Status - Teaching Tax Flow: The Podcast

Episode Transcript
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John Tripolsky (00:04):
Welcome back to the teaching tax flow podcast
episode 135. Today, we arelooking at how your filing
status can greatly impact yourtax returns. So before we get
into that topic, as we alwaysdo, let's take a brief moment
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Hey, everybody, and welcome back to the Teaching
Tax Full podcast. As you've seenin the show notes or you've seen
in the title, you can't put aprice on love. Now what in the
world does that mean when itcomes to your taxes and filing
status? We're about to diveinto, excuse me. See, I'm
getting all choked up here.
Thinking of Cupid, I guess. Butwhere I was going with that. I

(01:32):
know there's a ton ofinformation in this, and Chris
Picchiro, welcome back to yourown show, sir. But before before
I hand the mic over to you, as Imentioned, there's so much in
this that I could imagine wecould probably have a four hour
conversation on how each statuschange may kinda drive you in a
different direction. But in thisone, we'll just kinda skim over
it maybe a little bit.

(01:53):
Now I'll give you the mic.Alright. Welcome.

Chris Picciurro, CPA (01:56):
Welcome. And, John, you know, if you
really love me, you would havebought me, no pun intended, a
red teaching tax flow shirt. Ifyou are not watching this, or
you're listening, go check outour YouTube channel because I
have a plethora of teaching taxflow T shirts, but nothing in
red. Nothing in red. Appropriatefor this for this podcast

(02:18):
recording.
But that's alright. I I stilllove you, and we still
appreciate you. Everyone, Imean, these topics, I I mean, we
we are very heartfelt aboutthis. They're coming from our
teaching tax flow community, andthat is the heart of it, is is
our defeating taxes privateFacebook group,

(02:39):
defeatingtaxes.com. But whatwe've been seeing, John,
actually, we are getting a tonof comments, on our YouTube
channel videos, which isteaching tax flows YouTube
channel, And they're really goodcomments, so we're answering
those, as they come in.
We love it. And because becausewe're getting these comments,

(03:00):
because we're listening to ourcommunity and we have an amazing
community that likes to chimein, that drives us to be able to
provide show topic ideas to backto the community and and dive
into things. And this is likeyou know, filing status is an
often overlooked item when itcomes to taxes. And and a lot of

(03:22):
times, people say, well, what'sso complicated about that? Well,
it can be very murky.
Right? Marital statuses changein all the time, and and and it
could be it could be somethingthat could could really play
with your tax situation. Sotoday, like you said, John,
can't put a price on love. I saythat to I've saying that to

(03:43):
clients for many, many years.Even Cupid can't override the
internal revenue code, so let'sdive into what that means.
There are five filing statuses,and each filing status has its
own set of tax brackets. Right?Because so someone's income,
that's why I want you to thinkabout is as you listen to this.

(04:03):
We know if when because you'rean avid listener of the teaching
tax flow podcast, you alreadyknow that different income is
taxed at different rates.However, you could have a
taxpayer with this a certainamount of income, and based on
their filing status, we'll pay adifferent amount of tax on that

(04:23):
same income.
That's what's so interestingabout filing status. So we have
five filing statuses, and I'mgonna run through those with you
today, and then we're gonna talkabout some quirky things and
some ideas and some unique ruleswithin those filing statuses,
John. So And I know we're off to

a great start already because for the first
time, I think, ever in thehistory of the show, you busted
out the cheesy dad joke before.

Oh, I've got a lot

of them. Me.

So Well, we're and we're

gonna Congratulations, sir.

We're gonna remember we're gonna
remember that your maritalstatus on the last day of the
year, so December 31, is yourmarital status for the entire
year. A common question wereceive is, yeah. I got married
in June. Do I file a tax returnsingle for the first half of the
year, married for the secondhalf of the year. So we're so

(05:16):
just think about that.
Whatever your status is at thelast day of the year is your
status for the entire year.We're gonna start off with the
first the first filing status.John, it's the status we were
both at when we met many, many,many years ago.

That is true. Single. Singleing and mingling.
Well, I shouldn't say mingling.I was I was.
I was pretty young at that time,but I was still I was I was
chasing the ladies of the jetskis, I think, in the middle of
the lake at that time. Well,

you were yeah. Luckily, you're not we're
not single and looking to minglebecause I don't think it would
bear well for us. But we areboth single, and we were both
single. And what does that mean?

That came across completely wrong. No. It was

Exactly. Trust us, guys. It was over
twenty years ago if you'relistening to this.

Oh, god.

So what is single? I I mean, you might
chuckle at this and say, oh,come on now. Is that what's so
complicated about this? So itapplies to people that are
again, remember, December 31,unmarried or legally separated
under divorce decree at December31. So this is a really tricky

(06:26):
thing to remember.
Let's pretend you have a marriedcouple. Let's pretend that they
get legally separated in Aprilof a certain year, and they are
living in two separate abodes,and they have a legal separation
agreement. Technically, eventhough their marriage might not

(06:46):
or their divorce might not befinalized by December 31, in the
IRS's eyes, they can each fileas a single taxpayer. That is
advantageous for the taxpayerinstead of having to file
married separately, which we'regonna touch on in a couple
minutes. So that's pretty that'spretty crazy that, you know,

(07:09):
that that could play a role.
So you could be married onpaper, but a single taxpayer.
And this is this this is the,you know, the the default filing
status for unmarriedindividuals. Now if you're
unmarried, you could fit intoone or the other. Actually,
there's two other filingstatuses you could be, but this

(07:31):
is your default.

So Makes sense. Makes sense.

The second filing status we're gonna talk
about is married filing jointly.That means you're legally
married on December 31 even ifyou didn't live together the
entire year, as I mentioned. Youcould have gotten married in
May. If you love football, weknow you're not gonna get

(07:58):
married in the fall. You couldget married in August, I
believe, like Johnny t did.
Luckily, it was up in Michigan,so we weren't sweating too much
in our tuxedos. Yeah. Thesethese weddings in, like,
Florida, Alabama, even here inNashville in in the summer, the
guys really cook like a cook itup on on those hot summer days.

It's like there's a reason why when I
lived in South Carolina, gettingmarried in the summer was deeply
discounted. And frowned upon.Give them away.

And frowned upon, John. But married
filing joint, in that filingstatus, what's happening is the
spouses are combining all theirincome, all of their deductions,
all their credits, all of theirdependents. It does provide you
with the highest standarddeduction. So the standard
deduction in 2024 was overalmost almost $30,000. And the

(08:54):
cool thing is is if you filemarried jointly, you're still
eligible for a full earnedincome credit, a full child tax
credit, education credit.
So in general, if you'remarried, from a purely a tax
perspective, we're gonna talkabout later on when it might not
make sense to file jointly, butfrom purely a tax perspective,

(09:16):
this is the best filing statusfor you. However, if you do file
jointly, understand that you'rejointly and severally liable for
any tax owed even if one spouseearned the income. So, John,
let's say you are some slug, andyour wife was a go getter, and

(09:39):
she supported you, and youdidn't even help with the with
your child. All you did was petthe dog.

But in having a Bassinam, that's easy because
he's always in one spot.

He's asleep. You know, we know Cooper
Cooper has some challenges withvision, but but we still love
him. And but even if one spouseunder withholds on their w two
wages, you're both jointly andseparately liable. Now there are
some exceptions with innocentspousal support, and we're gonna

(10:11):
talk about withholding and thatkind of stuff in the future, but
the later on this podcast. Somarried but married join is
typically your best option ifyou are married.
Now the third status is marriedfiling separately. Okay? Married
filing separately, that mean soif you are married legally at

(10:32):
the end of the year, thatdoesn't require you to file with
your spouse. That's a commonquestion as well. A lot of times
people come into the teachingtax law community, oh, I got
married.
Do we need to you don't have tofile together. A lot of times,
it makes sense, but sometimes itmakes sense not to file
together, especially if you havemaybe a second marriage or

(10:54):
you've got certain you know, youthere there are some things that
have been established previouslythat you were planning for. And
the advantage of married filingseparately is you're only
responsible for your own taxreturn. You're not taking in
that joint and several taxliability for your spouse. Now
if you file married separately,you are gonna get disqualified

(11:16):
for several credits, like theearned income tax credit.
You're gonna get a reduced childtax credit, and you do not
receive the student loaninterest deduction. So the point
is, if you're married filingseparately, you will have less
ability in general to take taxcredits and some of the

(11:37):
deductions. Sometimes it makessense. Right? It could make
sense from a financialperspective.
It could make sense from anonfinancial perspective. Let's
say you have a lot of medicalexpenses or one spouse can
itemize. Now if one spouseitemizes, the other spouse has
to itemize. Well, let's say forsome reason financially, and I'm
gonna put it at about one, maybeone and a half percent, it makes

(11:59):
sense to file separately. Youcan you can do that.
It might make sense if you one,for planning purposes of
somebody's income for studentloan repayments based on their
tax return. It could make senseif there's if you're separated
from your spouse during theyear, you're not legally
separated, or you've got somelegal or financial concerns with

(12:22):
your spouse. Right? You couldmaybe they are involved in a
lawsuit. Maybe their spouse hasgot some some things that
they're working through that youquite frankly don't want to be a
party to, and you don't wannafile together.
So that is married to filingsupra.

And with that one, Chris, I kinda and and not
really a question for you atall, but to kinda what it sounds
like for, you know, the thenontax guy in the in the room.
It seems like that is extremelyrare. And most of the time or I
should say extremely rare whenit makes the most sense. But at
some point, right, you youalmost some individuals might

(13:01):
make the decision like, you knowwhat? Yep.
And I understand we kind of getnixed out of some benefit, but
there's something else going on.It's more of a preference Right.
Than a benefit, you

should say. I would say if I had to put
in a number on it, I would sayabout one to one and a half
percent of the time financially,it makes sense to file
separately. I would say about 5%of the time three to 5% of the
time, it makes sense to fileseparately for other nontax
reasons. Let's put it that way.I shouldn't say financial, but

(13:32):
yet, for non tax reason, butthey could be somewhat
financial.
They could be non financial.They could be legal. They could
be for a variety of of concerns.

Makes sense.

And quite frankly, you could have a I
mean, this I've been doing thisfor a long time. There are there
are taxpayers out there that,quite frankly, keep all of their
finances separate. They'remarried. They have a they in
they have a healthy what wewould consider a healthy
marriage. They just happen tosay, we are going to both maybe

(14:02):
contribute to the householdfinancially, but what I do with
my money and my investments orwhat the other person does with
their money and theirinvestments are completely
autonomous, and they just fileseparately for that reason.

Mhmm. Or you can see it if somebody is a w two.
Everything is very systematicfor them. You know? Around comes
tax day, quote unquote.
If you can't see it, they fileit. They get their refund. They
move on their way. The otherperson's a business owner filing
extensions. They don't wannadeal with it.
They just Sure.

Move along. Right? There's a lot of
reasons. Absolutely.

Right.

So let's go with the fourth out of five
filing statuses. Head ofhouseholder, HOH. It's kind of
the s corp of of filingstatuses. Right? It's got some
attributes of a single taxpayer.
It's got the attributes ofsomeone that's married because
you have dependents. But a headof household applies when you're
unmarried or consideredunmarried. Remember when we

(14:57):
talked about that, you know,maybe legally separated at the
end of the year. So someone thatwould typically file a sing as a
single taxpayer. However, theysupport a qualifying person or
dependent, and then they're headof a household.
The cool thing with head ofhousehold is you have your you

(15:21):
have a larger standard deductionthan single, and your tax
brackets are your tax isreduced. So the same amount
income for a head of householdperson is taxed less than a
single person. It means thosetax when we look at the tax
brackets now you remember us areare fans of teaching tax law.
Your marginal tax rate's moreimportant than your tax bracket,

(15:43):
but you ascend into the highertax brackets brackets at a
slower pace head of householdversus versus single. So how do
you become a head of household?
Well, like I said, you have tosupport a qualifying person.
What the heck does that mean?You've gotta pay for more than
half the cost of maintaining ahome for a qualifying person,

(16:04):
and the qualifying person has tolive with you for more than half
of the year. Typically sotypically, that qualifying
person is gonna be a child, butit doesn't have to be. And you
can actually in some cases, youcould have a qualifying person
that doesn't live with you.
I'll give you an example. Whatif you have a parent that's

(16:26):
mature aged? And let's say youthey live in your town. You rent
an apartment for them, so theyhave some type of autonomy, but
you actually provide more thanhalf of their support. They
could still you'd still be aheadof household.
Or what if potentially, I guess.But what if your you have a
qualifying student and they liveon a college campus? That's

(16:48):
considered a temporary astemporary residence. Again, head
of household gets really sticky,So definitely talk

about that comparison. To an s corp. I
think that is the best the bestway you can put it. And if
anybody's wondering where thatcomparison comes from, I think
we've done multiple podcasts nowwhere we've talked about s
corps. I won't I I don't wantChris's blood pressure, you
know, to go through the roofand, you know, his whole face
turn red.
So we we won't really get into scorps, but he he lit that fire.

Well, the the reason I say it's like an s
corp is, like I said, it's it'skind of a a merger of two
different filing statuses. Socheck with your tax
professional. There areadvantages to that. I will say,
you know, this gets and thisgets really murky also, for lack
of a better term. Let's say youhave two parents that are not

(17:39):
married, and they havedependents together, and who's
claiming what child, whoqualifies for head of household.
For those reasons, this is byfar the most heavily audited
filing status. That being said,if you qualify for head of
household, absolutely file ushead of household. Just
understand that you're gonnaneed that documentation.

Makes sense.

Final of five. This one is called the
qualifying surviving spouse. Soif you are married and your
spouse passes away, if yourspouse died within the last two
years, but you're stillsupporting a dependent child,
you can file as qualifyingsurviving spouse, which allows

(18:25):
you to to stay in the marriedfiling jointly standard
deduction and file and taxbrackets, even though you might
otherwise be single or you'd bea head of household otherwise.
Alright? And you can do this fortwo years after the year the
spouse passes away, assuming youdon't remarry in that in that

(18:49):
time frame and you maintain ahome for a dependent child.
So this really helps outtaxpayers that are supporting a
child, their spouse passes away.Bottom line is they still get to
keep that, quote, unquote,married filing, joint filing
status for a couple years, whichis the which provides them with
the higher standard higheststandard deduction out of the
five in the lowest tax brackets.When I say lowest tax brackets,

(19:13):
that means, excuse me, you'reascending into the higher
marginal tax rate at a slowerpace, meaning at in a higher
amount of income.

And that last one that we just spoke of there,
right, the QSS, I think theythey refer to it as, that's the
only one that has a timerestriction on it. That's a
great point. Absolutely. Becauseevery every other one is really
whatever the status is, whetherhow short or how long it is, it
is it is until it goes somewhereelse. So that one seems like
like you mentioned, it's it'sbasically put in place as a

(19:46):
transition period.

Correct.

Awesome.

Let me leave you with a few different
pro tips I wanna talk abouttouch on real quick, in general,
when married filing joint'sbetter to file when you are
married versus married filingseparate. Then higher income
thresholds is a positive. You dohave full access to credits like

(20:12):
earned income credit, child taxcredit, lifetime learning credit
slash American opportunity taxcredit, and then joint reporting
can simplify a lot ofdeductions. Because think about
this, John. If you're filingwith a spouse and you both pay
the mortgage interest or thereal estate taxes, are you
paying it both fifty fifty?
Who's claiming what deduction?It gets a little tricky. So

(20:35):
married filing separate, again,protects yourself from a spouse
with some tax tax debt orunfiled returns. Let's say you
can plan around certain itemizeddeductions, especially medical
expenses because they're subjectto a seven and a half percent
income threshold. And, again,those income based repayment,

(20:56):
issues related to student debtcould cause you to go married
filing separate.
When you do get married,definitely talk to your employer
if you are an employee andadjust your w four for tax
withholding. A lot of times wesee people literally, John, two

(21:16):
weeks ago in the Defeating Texasprivate Facebook group, and
that's kind of we kinda put atongue in cheek of, you can't
put a price on love. We had aclient or no. They're not a
client, but a member of theTeaching Tax Tool community say,
I got married last year, I owedfor the first time on my tax.
What did I do wrong?
Well, you didn't do necessarilyanything wrong except you
probably didn't update yourwithholdings from your employer

(21:39):
because when you file jointly,you are combining your income.
But if you file separately, thetax rates are higher than
single.

That's some great advice to kinda close-up
on, like, move it that way. So

Yes. I do wanna close-up on one more
thing, though.

Yeah. Absolutely.

Kick me off the stage yet.

I've been trying, man. I'm trying. I'm
trying. I'm try I'm gonna shootthe Cupid arrow your way and see
if I can just you know?

The final thing I'm gonna talk about would
mean that the arrow was like aboomerang. And, unfortunately,
for Cupid, it got shot in theair, came back, and stuck him in
the belly. Because we're talkabout divorce. Okay? Two things
with that.
First thing is if you are weknow that your filing status the
last day of the year is yourstatus for the entire year.

(22:24):
Alimony. So alimony after12/3138, this is through the Tax
Cuts and Jobs Act. So anydivorce decrees finalized in
2019 or beyond, alimony is notdeductible by the person paying
it and not taxable income forthe person receiving it. For
previous agreements, alimony wasdeductible for the person paying

(22:47):
it and taxable income for theperson receiving it.
Child support is never adeduction, and it's never
taxable income. And thenfinally, there are some special
rules around retirement plandistributions and the 10%
penalty for early distributions.In what you're gonna wanna look

(23:08):
at when you're talking aboutthat are QUADROS. That's a
qualified domestic relationsorder. So let's say, John, you
have two taxpayers.
They divorce. One taxpayer has asignificant amount on their
retirement account, and thecourt ordered them to transfer
that to the the other spouse. Ifthat other spouse takes it as a
distribution, it would betaxable. But if they're under

(23:30):
the age of 59, typically,there's a 10% penalty. If it's
under a quadro, they don't haveto pay that penalty.
So tax professionals, you'regonna want you're gonna wanna
talk to your tax professionaland always provide them with a
divorce decree if you run intothis situation.

Now I feel like I learned something too. I've
never heard of that, Quadro.

That's good though, John. So that means
you're still married.

Yeah. Let's let's keep on that track.
Otherwise, me and Cupid got somewords to exchange with each
other. Cupid, meaning it's youactually, buddy. Because if it
wasn't for you, I wouldn't haveactually met my wife.

Oh, that's a that's a that I've been known
to be called the love doctor,and that's a story for another
day

with that's a story for a whole another
podcast that we can fly underanonymity.

Yeah. Yes. We will. Anyways. So remember,
love is priceless, but yourfiling status isn't.
Choose wisely, plan ahead, anddon't let the IRS surprise you
after the honeymoon or, Jen, aheartbreak.

Oh, right to the heart. We need to play a a theme
song here. Know? Shot to theheart. Anyways, so, yes,
everybody is is obviously, wetalked about here.
So there's different stages ofthis. Right? There's different
filing statuses. There'sdifferent phases of life people
go through. I mean, obviously, Iwould I would say obviously, but

(25:00):
majority of people, I would Iwould make the assumption,
majority of taxpayers willtransition out of one into the
other, maybe back into one incertain situations into a
transitional one, as wementioned.
Don't be afraid. As always,reach out to us,
defeatingtaxes.com. As Christymentioned a couple times, there
is our private Facebook group.Jump into that. Drop any
questions.
You can do it anonymously. Youdo not have to put your name in

(25:23):
there. That is a Facebook group,but there's a an option for the
anonymous posting. And moreimportantly than that even,
don't really do anything unlessyou talk to a tax professional.
So, yes, you can get a lot ofadvice from defeating taxes.
We are happy to help out. I saywe, meaning Chris and the rest
of the team at teaching taxflow. Trust me. You don't want
any tax advice from themarketing guy. All it will do is

(25:44):
drive you to, somewhere else toget the right answer.
But that being said, allseriousness, don't make any
decisions when it comes to thiswithout knowing exactly what
you're doing because as Chris,as you mentioned, there's a
pretty hefty implicationsregardless where you go or if
you don't do something, like youmentioned updating your w four.
So any questions, you know whereto reach out. We are here. We

(26:05):
have a team of people ready tohelp you out as you need, and we
will see you back here on theTeaching Tax Flow podcast next
week. Different day, completelydifferent topic.
Have a great week, everybody.

Disclaimer (26:23):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment adviser.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of

(26:44):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.

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Ep. 135 | Love, Taxes, and Filing Status

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