Essay on Tax Memo

845 Words Oct 30th, 2014 4 Pages
October 2, 2014
Tax File Memorandum
To: Brett Ouray

Facts
Kathy and Brett Ouray were married in 1996. In 2014, they consider themselves completely estranged. Due to financial reasons they have decided to not get a divorce or live separately. They also do not have any legal documentation of separation and neither of them has lived outside the home for a significant amount of time. They currently reside together with their three children. They have decided that Brett has contributed more to the upkeep of their home and children than Kathy. They have also decided to file separately. Brett believes he is eligible to file for head-of-household.
Question Presented
Is Brett Ouray eligible to file for head-of-household? If not, how
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The joint liability could cause issues for both parties if there were more tax liabilities or an audit was found in the IRS’s favor. When a joint return is filed personal exemptions are allowed for both spouses and exemptions for dependents can be claimed for all dependents.
The other option afforded to the Ouray’s is to file separately as a married couple. Filing separately can be advantages under special circumstances. However, if the couple was to file separately, there are several restrictions. First being, that if one spouse cannot demonstrate more than one-half of a child’s support is provided by them, a multiple-support agreement must be filed. Next, if one taxpayer itemizes their deductions they must both take itemized deduction and same goes if one person takes a standard deduction, the other must as well. If filing status was to be separate, neither spouse can claim the earned income credit and the credit for child and dependent care expenses. Next, no deduction is allowed for the interest paid on educations loans, and only $1,500 of excess capital losses can be claimed by each person.
From a tax planning perspective, more details would have to be known about the Ouray’s expenses in order to determine the best course of action. To address the original question of ability to file head-of-household, Brett is unable to, because he is still married and living in same household as his

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