If married filing jointly, how does spouse claim self-employment, thru filing separately?

Question

The story is we have always filed married filing jointly, but my husband is now self-employed, is it beneficial for him to file separately or continue to file jointly. He wants to be able to get self employed health insurance and you need to have an income of more than 10K a year. How would we save the most thru jointly or separately? NY, USA

Thanks in advance.

Answer 1

If your need for privacy is the reason you didn't provide any income figures, I understand. But how can one answer your question in a specific way without knowing something about your current and/or anticipated taxable income structure?

The bold part of your question seems to ask how does one physically report self-employment income. The answer is--on Schedule C of Form 1040. You go on to discuss the need for your husband to purchase health insurance. Whether you file jointly or separately shouldn't matter--you can make the details of your tax return available to prove your husband's income level, if that's what is required for coverage. There are many limitations applied when a married couple files separately--too numerous to mention here.

If you look at the tax rate schedules, you'll see that the income brackets for a married couple filing jointly are exactly double those for a married couple filing separately. See page 84 of the 2006 Form 1040 instructions at the following link:

http://www.irs.gov/pub/irs-pdf/i1040.pdf?portlet=3

If your incomes are approximately equal, the income tax result might be about the same. Even if one income is higher than the other, the structure of the tax rate schedule usually produces the same overall income tax under either method. Why don't you spend a few minutes with the schedules and see what the results might be in your circumstances? Search the instructions for the term "married filing separately" and learn about some of the potential problems. Start with the gross income required to file--it is less than half that for married filing jointly--thus a disadvantage. Certains deductions and credits are not available to a married person fiing separately. Read and learn.

There is no advantage for one vs. the other, as regards self-employment income. The self-employed's net earnings are going to be included in taxable income, but also subject to the self-employment tax calculated on Schedule SE.

Answer 2

Self-employed taxpayers can deduct 100% of their health insurance (up to their net profits) regardless of their filing status, as long as they do not have other insurance available to them (as from an employer or spouse's employer).

There is no advantage to a self-employed person to file separate from a spouse. The forms related to self-employment, Schedules C and SE, are self-contained and do not interact with the other taxpayer's income and deductions.

You will likely benefit from filing jointly, as do most married couples.

Answer 3

If you made more than $400 net earnings from the freelance job, *you* have a filing requirement even if you file separately from your husband. (If you made less than $400, you don't.) You don't give the state you are in. If you don't live in a community property state, the injured spouse form is moot since you had no income. If you do live in a community property state it would still be worth filing. By the way, the child tax credit is not the credit you lose when you file MFS, education credits and EIC are the ones.

Answer 4

You can and almost surely should still file jointly. His income, and associated eligible expenses, will show on a schedule C or C-EZ, then he'll use a schedule SE to calculate his self-employment tax (social security and medicare). The numbers from the two schedules will transfer to your joint 1040.

It's possible, though, that only his income from his business will count toward the $10K limit you mention for the self-employed health insurance.

Answer 5

You will amost always pay less tax by filing a joint return. His self employment income will not change that.

About the only time that a married couple will save money by filing separate returns is when one has relatively low income and very high deductions that are limited by AGI such as medical expenses (7.5%) or casualty losses (10%). In virtually all other cases you'll pay less total tax with a joint return.

Answer 6

Married filing singly is the most undesirable status to file. It is only used as a last resort when one party has a huge debt burden.

MFJ looks at total household income, wages, dividends, interest, self employment, gifts, gambling winnings etc.
He will have to file business taxes (but can then deduct 1/2 of them).

Another alternative is to incorporate and 1040 himself. He will pay SS, FICA and Medicare and state taxes on his wages. Better talk to a CPA once everthing gets going.

Answer 7

Find a accountant that specializes in his biz and spend sometime with him or her for advise, it sure saved me a bundle. Also if you want a awesome tax write off and save a bunch in your travels go to www.ytb.com/wfrwyatttravel