Recently there have been some developments regarding so-called “marriage penalty” that some couples experience when filing taxes. This penalty occurs when spouses that have similar gross incomes pay more in taxes when filing jointly than they would if they had submitted their returns separately. In addition, some joint-filers experience reduced or eliminated deductions with adjusted gross income ceilings.
The Tax Cuts and Jobs Act (TCJA,) passed in 2017 helped to alleviate this conundrum for many couples in lower tax brackets, but high-income filers may still run into the issue when filing their returns. In addition, the Act created some additional tax complications. One example of this, according to Accounting Web, is the SALT deduction. In their article, “Tax Twist to Charitable Deduction for Nonitemizers,” they explain that “The deduction for state and local tax (SALT) payments is currently limited to $10,000 per year. This substantially hinders joint filers if they collectively have more than $10,000 in SALT payments.”
Unfortunately, the article also points out that there is now another drawback for joint filers with high incomes. As we have detailed in previous article, the CARES Act was passed this year in response to the Coronavirus crisis and accompanying economic downturn which has caused financial discomfort for many households. One of the provisions included in the act was a new charitable tax donation deduction for nonitemizers. This deduction is capped at $300 and is valid for contributions to “qualified charitable organizations” (which do not include some private foundations or donor advised funds) that are paid in cash, by money order, or with a credit card.
The problem with this new deduction is that the limit of $300 applies to every return filed, meaning that couples filing jointly can only deduct half of the amount that they could if they were submitting separate returns.
While a $300 deduction is likely not going to be a life-changing difference for most taxpayers, it is something to keep in mind as you decide whether you’d like to file jointly or opt for separate returns. The $300 deduction cap does not affect those taking itemized deductions, who can continue to deduct charitable donations as normal.
As we always suggest, be sure to talk to your CPA to determine if filing jointly or separately is right for your specific situation.
