After All That, I Still Had to File an Extension

I thought I was doing so well! I finished both Federal and New York joint tax returns Monday afternoon. Today, I started to recalculate them as married-filing-separate so I could do the NJ and VA state returns. Fortunately, I subconsciously noticed something curious after I finished the MFS version of the taxes, and looked them over carefully to find out why they seemed different from other years.

I discovered that this year, we'd actually save over $2,500 by filing MFS instead of joint. This has not happened before, and I really wasn't expecting to file our 1040s separately. I have to fill out an annualized form 2210 to avoid underpayment penalties. For those of you lucky enough to be unfamiliar with this, it means I not only have to add up the annual totals for each tax line item, I have to go through my records to discern the totals for each tax line based on the transacations from 1/1 through 3/31, from 1/1 through 5/31, and from 1/1 through 8/31. In order to save the $2,500, I now have to do this not only by date, but also by ownership, allocating each item of income or deduction to either Terry or myself. We have both joint and individual accounts, and our earnings fluctuate throughout the year, so there's no quick and easy way to do this. Plus based on the whims of the allocation factors we fall into and out of phase-out ranges, and all this must be calculated on a spreadsheet. TurboTax is helpful, but when you have taxes as complicated as ours, there is only so much that can be automated. So despite being very close to finished with the taxes, I had to go off to the post office armed with only my application for an automatic extension.

Now don't get me wrong, this change wasn't odious, I knew it would only take me a couple of hours to break out the additional data. It seems like a very good trade-off for me, to add another half-day of work in order to net another $2,500. I spent an extra 30 minutes thinking about how to maximize the distribution of our itemized deductions, I saved about $80 from that.

I actually did file Terry's NJ tax return on time today; the parts of the MFS returns I changed this evening didn't affect the NJ allocation so at least that one is put to rest. I'm ready to file Fed & NY tomorrow, but I might hold off until I do just a little more checking into the 2006 amended return I've nearly completed. There might be a new carryforward credit I could apply to 2007 if I file the amended 2006 first. But I'm not sure, it's probably nothing, but to me it's worth me spending a few hours investigating the tax rules to find out for sure.

When our refunds finally come through, I think I'm going to buy myself a treat. The tax returns for the past few years have been horrendous. I've probably averaged 100 pages per year since 2005. Terry is lucky he married a CPA, otherwise we wouldn't really be getting a refund this year, since the entire amount would go to pay accounting fees if we sent our returns out.