MFS to get stimulus?

[Possi]

My clients are married. Together, their income is too much to get stimulus. 

BUT, if I do MFS, the spouse qualifies for about $1000. 

I can easily break hers out and file separately but for joint investment income. 

If I leave all the investment income on the TP side of the return, will that fly? His is the primary SS number on the accounts, but they are in both his and spouse's names. 

 

[Abby Normal]

I think you'd have to split the investment income to be proper, but I've never had to research that.

As an aside, this is one of the reasons I discourage joint investment accounts. The other is when one spouse dies, it's much easier to see the basis step up.

[Lee B]

1 minute ago, Abby Normal said:

 

As an aside, this is one of the reasons I discourage joint investment accounts. The other is when one spouse dies, it's much easier to see the basis step up.

Excellent point

[Possi]

17 minutes ago, Abby Normal said:

I think you'd have to split the investment income to be proper, but I've never had to research that.

As an aside, this is one of the reasons I discourage joint investment accounts. The other is when one spouse dies, it's much easier to see the basis step up.

Man, that's such a good point about the bump up basis. 

On that topic, my friend's wife died in 2019 and they held a ton of AMAZON stock which skyrocketed since she bought it. I'll be opening another discussion when I step up basis on half those stocks. But, that's another tax return. 

So, we still aren't sure if they would get a letter if I don't split the investment income on this return. Since his is the primary ID number, I'm thinking it would be ok, but I'll let this hang out there a while to see if anyone else chimes in. 

 

[Gail in Virginia]

If it is in joint name, I would think that each of them should get half of the income when you split the return.  I doubt it would ever be caught, unless audited.  I don't think the IRS matches to that extent.  But is it right and ethical?  I don't know. 

[ILLMAS]

What happens if they are in a common law state, would you have to split the wages?

[Possi]

2 minutes ago, ILLMAS said:

What happens if they are in a common law state, would you have to split the wages?

I think you would. 

[Possi]

11 minutes ago, Gail in Virginia said:

If it is in joint name, I would think that each of them should get half of the income when you split the return.  I doubt it would ever be caught, unless audited.  I don't think the IRS matches to that extent.  But is it right and ethical?  I don't know. 

As long as somebody is paying tax on it, it's right and ethical. Right? If I must do that, I'm not changing anything. I think that would just create a rat's nest.

[Pacun]

13 minutes ago, Possi said:

As long as somebody is paying tax on it, it's right and ethical. Right? If I must do that, I'm not changing anything. I think that would just create a rat's nest.

Since it is ethical and legal, why don't you give the whole investment income to the wife?

[grandmabee]

someone is paying tax on it but they also are getting a stimulus payment that they are not entitled to.  If joint account I would split the income from the investment account.

 

[Possi]

1 minute ago, Pacun said:

Since it is ethical and legal, why don't you give the whole investment income to the wife?

hmmmmm 

[jklcpa]

Hmm, I would divide it as being 1/2 to each.  I checked Pub 17 under interest income and found this, Ch 6, page 54:

Quote

Joint  accounts. If  two  or  more  persons  hold property (such  as  a  savings account or bond) as  joint tenants, tenants by the  entirety, or tenants in common, each person's share of any interest from the  property  is determined by local law.

 

[Possi]

2 minutes ago, jklcpa said:

Hmm, I would divide it as being 1/2 to each.  I checked Pub 17 under interest income and found this, Ch 6, page 54:

 

We are not a community property state, but I'm swinging to your side on this. 

Thanks, y'all! 

[jklcpa]

3 minutes ago, Possi said:

We are not a community property state, but I'm swinging to your side on this. 

Thanks, y'all! 

Yes, we are an equitable distribution state as are you. I'd divide it in half.

[Possi]

2 minutes ago, jklcpa said:

Yes, we are an equitable distribution state as are you. I'd divide it in half.

Thanks, will do. That's my "final answer" after "polling the audience!"

 

[Abby Normal]

Besides, moving investment income to the spouse should result in lower tax than leaving it all on one.

[GraceNY]

If you just split the income, I would think that would cause an IRS matching issue since the tax documents only report the husband's SSN.

What I did with a TOD account where there were dividends paid out after the death of the account holder was pull up the 1099-DIV and typed in XYZ brokerage account dividend's and listed the entire amount.  Then pulled up another 1099-DIV and typed in XYZ brokerage account dividends - Nominee Distribution to XXX-XX-XXX (in your case the wife's SSN).  All of this came out great on the Schedule B.  So far no letter from the IRS and that was a 2018 tax return for a decedent.

For the TOD beneficiaries I pulled up the 1099-DIV and typed in XYZ Brokerage Account Dividends - Nominee Distribution from XXX-XX-XXXX (decedents SSN).

Since I prepared all the tax returns involved, I could easily document the numbers if there were any IRS Notice.  Doubt the IRS would issue a letters to beneficiaries as they reported more income than was listed under their SSN's.  The decedent's return would be another matter.

Grace

 

 

[Abby Normal]

To avoid matching notices, on person whose SSN the interest and dividends are reported, report the full amount and nominee out half to the other person.

I've never done that on 8949 but there is an adjustment field there as well.

[Pacun]

56 minutes ago, Abby Normal said:

To avoid matching notices, on person whose SSN the interest and dividends are reported, report the full amount and nominee out half to the other person.

I've never done that on 8949 but there is an adjustment field there as well.

To avoid many little issues, file jointly. It seems that husband is a high earner and wife is making enough money to make sense to file jointly.

[Slippery Pencil]

Whose money was deposited into the account?  If none of her money went into the account, should the income be reported on her return?

[Possi]

On 2/19/2021 at 8:02 PM, Pacun said:

To avoid many little issues, file jointly. It seems that husband is a high earner and wife is making enough money to make sense to file jointly.

Agree, and DONE. 

On 2/20/2021 at 2:58 AM, Slippery Pencil said:

Whose money was deposited into the account?  If none of her money went into the account, should the income be reported on her return?

As it was jointly held stock producing accounts and difficult to split, I filed a joint return. But, to address your question, I believe it doesn't really matter where the money landed when we are applying the matching rule. The income must be reported to the matching tax ID number, I'm pretty sure. That was the issue. His was first, but it is all jointly held. Leaving it alone was my best option. 

I'm glad we had this discussion, though. If not for that account, I probably would have filed them separately this year.