Nobody likes filing taxes. Thus, when two people get married one of the things they may look forward to enjoying is a reduced filing burden due to the availability of jointly filing one’s income tax return. That is, two married taxpayers can submit a single tax return containing all of their required information to satisfy both individual’s obligations. In certain scenarios, filing a joint tax return can even confer certain tax benefits, such as reducing the couple’s combined tax obligations.
However, there are rules that impact when a taxpayer can properly file a joint tax return. Furthermore, there are additional rules that impact when taxpayers can also file a joint FBAR. Because non-compliance regarding one’s tax return filing obligations and –to an even greater degree reports of foreign bank accounts — can trigger significant penalties, it is often essential to consult with a tax professional before engaging in any substantive action. The accountants and CPAs of the Cook CPA Group can provide careful, on-point guidance to help you maintain compliance with all aspects of the U.S. Tax Code and related laws. To schedule a free initial consultation, please call 916-724-1665 or contact us online.
When Can Taxpayers File a Joint Tax Return?
The question of when a taxpayer is permitted to file a joint tax return frequently comes up in our day-to-day practice. Since this determination will impact whether you are able to file a joint FBAR, now is a good time to review the rules that govern when a joint tax filing is appropriate.
As a general rule, taxpayers must be married to file a joint tax return. Therefore, taxpayers who are merely dating or have yet to tie the knot can never file a joint return. However, this still leaves an open question regarding what the IRS considers “married.” In this case, the general rule is that the IRS will rely on your state’s definition of marriage. In other words, if your state recognizes your marriage as valid, it is highly likely that you will be able to file a joint tax return. In California, this means that traditional and same-sex married couples can both opt to file a joint tax return.
When Is it Appropriate to Jointly File FBAR
Taxpayers will likely welcome the news that it is technically possible to file a joint Report of Foreign Bank Accounts (FBAR). A joint FBAR can be filed when taxpayers are married and are eligible to file a joint tax return. However, there are certain additional rules that impact whether a married couple can file a single, joint FBAR or must file individual FBARs for each spouse.
The main determination that impacts whether a joint FBAR is appropriate is whether the accounts are held jointly by both spouses or if only one spouse holds or controls the account. For a joint FBAR filing to be appropriate, all of the accounts held by either spouse must be jointly held. In other words, neither spouse can be the sole holder of reportable foreign accounts.
California’s community property system throws an additional wrinkle into this determination. Under California’s community property system, who owns what property in a marriage can be determined. While the rules are subject to modification by agreement or through a prenuptial contract, the general rule is that property acquired prior to the marriage is separate property held by one spouse. By contrast, property obtained during the marriage is held equally by both spouses.
Therefore, spouses who obtained their foreign accounts prior to marriage and have not taken steps to establish joint control of the accounts will most likely need to file separate FBARs. However, couples that only acquired foreign accounts following their marriage or engaged in steps to establish joint ownership of accounts that would otherwise be separate property generally can file a joint FBAR. However, whether filing a joint FBAR is appropriate is a fact-specific determination. Please do not attempt to file a joint FBAR unless your matter has been reviewed by a tax professional.
Work with Experienced Accountants in Roseville
The Sacramento accountants of the Cook CPA group can assist individuals with foreign account and tax disclosure concerns. Whether you are concerned about a particular tax position or are simply looking for peace of mind, we can help. To schedule a free initial review of your matter at our Roseville, California accounting office, please call 916-724-1665 today.