The IRS Does Engage In Revisionist History…

An eraser erasing The PastAmended returns aren’t just for correcting errors.

Amended returns, known as a 1040X, can be filed to take advantage of deductions or credits that you were entitled to, but didn’t take originally.  One lesser known aspect is the ability to amend your filing status, which can bring some large benefits to those who qualify.

Let’s say you and your spouse filed separate returns last year.  Did you calculate what you and your spouse’s tax liability (or refund) would be with a joint return?  Sometimes taxpayers may choose a filing status based on incomplete or erroneous information, or at the recommendation of someone who doesn’t really understand their situation, and they fail to realize the impact of their decision.  Below are some examples of when you may want to look into amending your filing status:

You and your spouse filed separately, but one spouse had significantly more income

The thresholds for being hit with the Alternative Minimum Tax (AMT), phase-outs for certain deductions or credits, and the tax tables can be almost punitive in how they apply to those filing Married Filing Separately (MFS).  By amending to Married Filing Jointly (MFJ), your exemption amount increases, your standard deduction goes up, the thresholds for AMT and phase-out limits are generally higher, and you’re more likely to end up in a lower tax bracket.  Also, for the spouse with lower income, if you have children, your income may allow you to take advantage of certain credits, such as the Child Tax Credit or Additional Child Tax Credit.  Calculate the difference between what you did pay/receive versus what you would have had with MFJ, and see if amending is the best option for you.

You and your spouse are a same-sex couple

One of the effects of Obergefell v. Hodges (the Supreme Court decision that allowed for same sex marriage) was that same sex couples who are married must file as married going forward.  However, if a same sex couple, legally married in a jurisdiction where it was legal at the time of the marriage, has filed single on past returns, they may amend their return to either MFJ or MFS for up to the previous three years.  It may or may not be advantageous to amend your filing status, depending on you or your spouse’s circumstances.  As in the previous example, if one spouse has significantly more income, amending to MFJ may be beneficial.  On the other hand, if both you and your spouse have high incomes, leaving your returns as Single might be the best path.  Once again, it may be worth calculating the difference to see what’s right for you.  It’s important to note that amending previous returns is optional, and the IRS does not require same sex couples to amend previous returns filed as Single.

You and your spouse filed separately, but you actively rented real estate with a loss

In an effort to keep this blog brief and light, I won’t go into the details of Passive Loss Limitations, but if you filed MFS and lived with your spouse for even one day in the tax year, your rental real estate losses were likely disallowed.  By amending to MFJ, you can deduct up to $25,000 of your rental losses against your active income, as long as you meet the IRS’ criteria of Actively Participating (for more information on Active Participation, and passive losses in general, click here).

You or your spouse filed Separately due to tax liability or audit concerns

This one is less common, but some taxpayers file MFS to isolate their spousal liability.  When filing MFS, each spouse is responsible only for his or her return, including taxes owed.  However, if a year or two has passed and the issue that caused you to file MFS is no longer relevant, you may look into amending to MFJ if it otherwise would have been advantageous.

In closing, I’d like to point out that amending from MFS to MFJ is a one-way street – you cannot file a Joint return, then amend to file Separate.  When in doubt, contact your friendly, local CPA firm, and they’ll be able to help guide you through the amending process.