The short answer is that a family child care provider who is married is almost always better off filing as “married filing jointly.”
When you are married you do have the choice of filing jointly or separately.
When You File Jointly
If you file jointly you will complete your business tax forms (Form 8829, Form 4562, Schedule C) and transfer the profit from your Schedule C (line 31) to your joint Form 1040, line 12. Your spouse’s income will also be reported on your Form 1040.
You will calculate your Social Security/Medicare taxes on Schedule SE and enter this tax on your Form 1040, line 56.
Your spouse’s income tax withholdings and any estimated taxes you paid are credited to both of you on your Form 1040. If you owe any taxes, you are jointly responsible for paying them. If you get a refund, you can split the money however you want!
When You File Separately
When you file separately you and your spouse each file your own Form 1040. You would still complete the same business tax forms and transfer your profit onto your own Form 1040. You would be solely responsible for paying any tax you owe. This means you should be paying in estimated taxes quarterly, using Form 1040ES.
Your spouse would be responsible for filing his own Form 1040 and paying any taxes he might owe.
Which is Better?
If you file separately you will lose the ability to claim a variety of tax credits: Earned Income Credit, student loan interest deduction, Hope and Lifetime Learning education credits, and more.
In addition, you must both file using either the standard deduction or itemize.
Perhaps the one benefit of filing separately is that you are not responsible for the accuracy and payment of tax on your spouse’s Form 1040. When you file jointly, you are both responsible for this. So, if you suspect your spouse is cheating on your taxes, you may want to file separately to avoid liability for unpaid taxes, interest, and penalties. To file jointly, you must both sign the Form 1040. If you don’t want to sign this form because you suspect your spouse is cheating, you can choose the option of filing separately.
If you have not lived with your spouse for the last six months of the year and your own child lived with you for more than half the year, you may choose another option and file as Head of Household. Doing so will allow you to claim more tax credits and pay a lower tax rate than if you filed separately.
The vast majority of married family child care providers file jointly. Fewer than 5% of married couples file separately. This article is a quick summary of this topic and your tax situation can be more complicated. Therefore, ask your tax preparer to see which filing status would be best in your situation.
If you are not married you must file as Single, Head of Household or Qualifying Widower with Dependent Child. See also from the IRS: Choosing the Right Filing Status.
Update: As tax professional Alison Jacks says in the comment sections below – if you live in a community property state it’s a more complicated questions of how to file. Community property states include: California, Arizona, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin. It’s particularly important to consult a tax professional in these states.
Tom Copeland – tomcopelandblog.com
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