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socrateaser
socrateaser, Lawyer
Category: Tax
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Experience:  Retired (mostly)
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Last year my wife and I filed as married filing jointly. The

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Last year my wife and I filed as married filing jointly. The problem is a SBA loan that she had the was defaulted when she was out of work on bed rest during her pregnancy and we couldn't keep up with it. Last year they took our whole refund and now we pay on it every month. I have 2 questions. 1) Is there any way that we can keep our refund this year now that we are paying on the SBA loan monthly? 2) Can we file married filing separately and can I claim our son and other expenses or will they still take my refund also since we are married? Any help would be greatly appreciated.
1) Is there any way that we can keep our refund this year now that we are paying on the SBA loan monthly?

A: The simple means of avoiding having your refund taken is to change your W-4 employee withholding or 1040-ES tax statements so that you end up owing a small amount of money when your return is due. That way, there is no refund to seize.

At this point, if you or your spouse are making estimated tax payments, then you would have one more due before your personal or business tax return is due. So, you may want to consider not making that payment, and thereby reducing the amount of any refund by at least that amount.

Unfortunately, changing your W-4 (if you are an employee) at this point would do no good, because you have already paid all your taxes owed for the 2012 tax year.

The only thing you could do if what I'm suggesting does not work would be to ask the creditor to not seize the refund, and see if they will agree.

2) Can we file married filing separately and can I claim our son and other expenses or will they still take my refund also since we are married? Any help would be greatly appreciated.

A: This is a very complicated question. Unless you have a pare or postmarital agreement recognized as legal under Louisiana law which provides that you and your spouse have decided to treat your income from all sources as separate, then your community income can be held liable for the debt of your spouse.

A premarital agreement is fairly straightforward to accomplish this goal. But, a postmarital agreement will almost certainly require an attorney to draft the document and ensure that it is in fact lawful in Louisiana -- because if you get it wrong, then your protection would be void. And, of course, the cost of having the agreement drafted may be more than the refund you would save -- so, it's probably not a realistic option.

Hope this helps.


Customer: replied 4 years ago.

Ok thank you. I thought maybe since the SBA loan was under her name we could have filed separately. But I guess I will try to see if I can talk the collection agency out of taking the whole refund.
Your circumstance may not be a lost cause. If you file separately, it's possible that the "administrative offset" (the term used by the government when it seizes money at one agency to pay a debt to another) may not attach to your separate return. The real issue, in my opinion, is whether or not, by your filing as married-separate, your taxes increase, such that there is little or no benefit in filing married-separately.

You may want to consider creating a joint return and then a separate return for both you and your spouse. Then compare the tax outcomes and see if it makes sense to file married-separately.

There is also the possibility of filing married-jointly, and then you file as an "injured spouse" (see this link). The question is whether or not your spouse incurred the debt before marriage. If she did, then you may be an injured spouse. If not, then your community property interest in a joint tax return/refund is liable for your spouse's debt -- which would eliminate this as an option.

Hope this helps.
Customer: replied 4 years ago.

I have one more question regarding filing seperatly. How would that work with our child? Would I be able to claim him on my return and not on her return ? So that way the child tax credit would be on my return? Sorry if some of the questions may sound kind of simple. I really don't know a whole lot when it comes to taxes. I just want to get as much back as possible for my family. Thank you.
Married-separate filers cannot take the child and dependent care credit. However, you can agree among yourself, which taxpayer will use the dependent exemption. Note that these are different issues for tax purposes, which is why I suggest that you get yourself some tax prep software and prepare tax returns as if you are married filing jointly, and then married-filing separately. There are too many variables to know whether or not a particular taxpayer scenario will benefit from one or the other filing status -- especially given your additional legal issue of an administrative offset.

I believe that you will find that the cost of filing separately will overwhelm any benefit achieved from avoiding the administrative offset on your refund -- but, there's no way to be sure, other than to create some pro forma tax returns and see how the numbers work out.

Hope this helps.
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