What would you do (should have been mfs for 2017)

[Margaret CPA in OH]

Couple, new clients in 2016, one retired, one much younger still working. Retiree had and has high divs and cap gains.  Younger one still works with fairly high income. I did not do MFJ vs MFS analysis then as my brain is more wired to check when 2 employed persons earn close to the same.

So filed joint for 2017, no one mentioned anything.  For 2018, they asked about separate filing - still trying to figure out who owes what.  So separate is $2k+ to their good combined with state.  2016 still good for joint but 2017 would have been almost $2k to their benefit to file separate.  Alas, can't go back.  I feel terrible but also am not convinced I should reimburse them for the extra tax paid. 

Suggestions as to approach or remedy of some sort?  2017 was true, correct and complete, just not the most favorable tax wise.

[Lion EA]

$2K LESS the cost of two separate returns vs. one.

I have my software set to ALWAYS churn out the MFJ vs. MFS comparison for federal. If it's close, I can look at the state(s) and look at joint items that could vary by % and ask questions.

Don't know what I'd do about 2017 in your situation, though. Sorry.

[Margaret CPA in OH]

Thanks, Lion, but I'm not sure of your meaning.  You think I should pay them the difference between the $2K less the additional cost of separate preps?  If so, what about potential interest for a year?  Should I 'fess up and open up to being sued?  Is suing even fair as I did prepare the joint return accurately?  I have to reread my engagement letter but I don't think I am required to always minimize the tax liability - or are we?

In ATX one has to add the comparison form which I do for 2 earners.  Just didn't think about it for these folks.

Woe is me!

[Pacun]

Margaret,

You are a nice person. I wouldn't return any money if I am the one discovering the error, but I always amend for free if I made a mistake.

So, you should amend their return for free.

 

[Margaret CPA in OH]

Yes, I would amend for free if it was possible but it is not possible to amend a joint return to separate after the due date which was April 15 2018.  It's possible to go the other way and I think it unfair to not allow both options but it isn't.

Thanks for the 'nice person' which I mostly am and I feel terrible about this but not enough to pay them $2000 when the return was actually correct - for that filing status, just not the most tax favorable for them. Ugh!

[Lion EA]

I was not suggesting you pay anyone anything. I was just pointing out that the difference is less than $2K because they'd have paid for a second tax return if they'd filed MFJ. Did they ask about 2017? If not, please don't do anything until after the 15th and you've had a good sleep. Then, you can think more clearly about what you did or did not do in a prior year. We're all human and sleep-deprived and working against a deadline. Stay calm and carry on.

[Margaret CPA in OH]

Thanks, Lion. I will breathe now - in, out, in, out...

[Lion EA]

Oops, you understood I meant ..if they'd filed MFS...  Yes, breathe. And, think about it again when you're well rested. I'm sure we all missed something that could've meant less tax for a client. But, if we were correct and legal, then it's not a big deal. Think of all the ways to depreciate. Or, take state sales tax to not pay tax on the refund next year. I have partnerships that have crazy % that the partners do not know why except some lawyer told them when they set it up that it had to be 37%/63% or whatever for a HW partnership to save taxes! I'm not going to second guess what my clients did decades ago. Don't second-guess yourself right now. Study the situation in the off-season to see if you can learn from it and to see IF, and that's a big IF, you want to do anything with your client because of it.

[Pacun]

Don't worry about that case. Take it out of your mind. We all make mistakes. EVERY SINGLE year we make mistakes. Just be nice to them and go the extra mile for them in the next few years and everybody will be happy.  When I realize that I made a mistake one year, I make sure those clients are treated nicely and I double check their future returns to make sure I covered everything for them.

 

[michaelmars]

You can't amend from joint to mfs.  You can only amend going the other way