Daycare Tax Tips

Should I file separately from my spouse?

Most married providers are better off filing together

A family child care provider writes:

> I am interested in your services. I would be filing separately from my spouse since he is employed outside the home.

You are allowed to choose between filing jointly and filing separately, but I will tell you that most taxpayers, including child care providers, find it easiest and cheapest to file jointly. It is a very common thing to have a sole proprietor business form attached to a joint tax return.

You can choose to file separately, if you want to, but here's the rub. California is a community property state. This means that half of your income belongs to your spouse and half of his income belongs to you. If you file separate tax returns, you must report 50% of YOUR income and 50% of HIS income on YOUR tax return. He does the same on his tax return. Sounds crazy doesn't it? But that's the law in this state. So far I have never had a client choose to file this way, because it more than doubles the cost of the tax preparation and is a very confusing way to file. It also generally results in paying higher income tax overall.

Sometimes people have very good reasons to file separately from their spouse. I definitely recommend this if a client believes their spouse may be hiding income from the IRS, for example. Also, some people are not even in contact with their spouse. These special cases need to be discussed and dealt with appropriately. For most married couples, however, it will be easiest and cheapest to file together.

I know that filing jointly does sometimes create difficulties for child care providers. Mainly I have seen some couples struggle to be sure that each one is pulling their weight in terms of paying the tax. I handle this in my practice by making sure the provider is making adequate quarterly estimated tax payments and by making sure the wage earner spouse has the right amount of payroll withholding. If the spouse is also self-employed, then we look at making sure that each spouse is contributing equitably to the estimated tax payments.

Posted on 2009-01-13 18:44:58