Getting Bigger return filing married-separately than married-jointly... Why is that?

[Derfdog]

For the past two years (2016 & 2017) we had a CPA do our taxes, I retired at age 60 in 2016 but my wife is still working.  We both felt that since I retired in 2016 it be best to allow the CPA to do our taxes since our incomes changed so much.  We were happy with the refund we were getting filing jointly.  In 2017 we had our CPA do our taxes again but since I had some additional funds taken out of my retirement fund the CPA found that we would do better filing as Married filing separately instead of jointly.

In 2018 I decided to do our taxes with TurboTax since the tax laws had changed so I bought the Deluxe CD.  I did the return Married Jointly  and Married Separately (for both of us) each time I itemized since we own a house and other deductions.

When I did I found that we did much better filing separately - over $1,300 better between the Federal and State?  Why would that be?  When I do the taxes separately I split up all of the deductibles (I took the mortgage interest, she took the property tax).

Did I do something wrong?  Does TurboTax have a way to determine if one way is better than the other?

Fred

[NCperson]

in some situations it would be more advantageous to file separately, but it depends on the specifics of each person. Fore example, if one of you has very large medical expenses with a small income, those medical expenses could exceed 7.5% of that person's income and be deductible when itemizing where if there was a joint return, they would not be deductible.  

however, assuming you own your home jointly, why are you not each taking half of the mortgage interest and property taxes? Given the SALT limitations, it could skew your results by one of you taking all the property taxes and one taking all the mortgage interest.  (this is where a CPAs advise is helpful).  How would you explain to the IRS why you did it that way and it is supportable by the IRS requirements?

you don't state how much of the benefit is driven by federal and how much is driven by the state in which you reside.  And you don't mention which state.   That would be interesting for this forum to understand.  Maybe the state you live in is driving this phenomenon?

bottom line is that your question can't be specifically answered without a thorough review of your circumstances.

[Derfdog]

Thanks for the quick response.
Also I need to have my eyes checked it turns out that I have to PAY almost a $1,000 not get back a $1,000 on my individual return.

As for deductions we took; our home interest/property and state & local taxes and donations.
I am not familiar with the SALT limitations but I was following what our CPA had done our 2017 taxes. When he did our individual returns he gave me the mortgage interest, my wife got the property taxes, charity we split the amount without dividing a charity. Any federal/state that I had on my 1099R & SSA1099 I deducted on my return, she deducted her W2 federal/state taxes.

As to you question "How would you explain to the IRS why you did it that way and it is supportable by the IRS requirements?"
If this was not allowed wouldn't TurboTax throw a red flag and ask why I did not have any property taxes etc with my home on my return. Also as I said I was following what our CPA had done.

For the benifits that we received by filing Married-Individually, for the Feds we only have to pay $638 compared to $688 if we filed jointly. As for the state we gained almost $700 in additional refunds from Ohio.

[NCperson]

for the federal return , please ensure you correctly answered the questions in TT so that 'married, filing separately' is accurate.  When you file this way, BOTH spouses MUST take the itemized deductions or BOTH must take the standard deduction.  Once can't take standard while the other takes itemized.  If you don't set up TT correctly that won't occur.  Suggest checking that (and I don't know whether ohio has a similar requirement)

Also, the 'SALT' deductions are limited to $5,000 each if you file separately.  (SALT is 'state and local taxes').  So for example, if you have $9,000 in state and local taxes (which includes property taxes), it would be best to split evenly between the 2 of you so that each enjoys a $4,500 deduction. Otherwise, the one that takes the entire $9,000 will be limited to $5,000 and the other $4,000 is lost.  When filing jointly, the limit is $10,000 so the entire $9,000 in my example could be deducted.  That normally didn't matter much under the old tax law, so that may be why the CPA didn't split evenly last year.  

did you have a lot of medical expenses for one of you that creates a deduction under one of you but not the other? ''

Turbo Tax doesn't check for whether you have property tax even if you own a home. For example, it could be in my best interest to pay my property taxes on December 31, 2017 and then not pay again until January 2, 2019 because my tax strategy reduces my taxes across the 3 years.  That is an example where there would be no property tax deduction in 2018 even if I own a home. 

I can't comment on Ohio specifically, 

[NCperson]

one other thing

please review this IRS document (the 2018 version has not been posted, but the concepts are similar) which explains how to split the deductions (table 1, page 5) and all the things you can't deduct / take credit for when filing as separate (page 6) . Their point is that most of the time, but certainly not always, your are better off filing joint. 

https://www.irs.gov/pub/irs-pdf/p504.pdf

[Derfdog]

Thanks for the input I agree that I should see better deductions filing jointly I will walk through and see if I missed something.  The IRS article on filing separately and deductions was interesting though it seems to be focused toward people who are divorced and having to split all deductions down the middle.

Thanks again

Fred