Married? The Question is to File Jointly or Not to File Jointly

The perpetual question that married couples ask each other at the time of tax filing is, “Should we file jointly or separately?” Filing jointly is typically more advantageous for married couples. Under certain circumstances, however, married couples will find that filing separately will provide them with more benefits.

If you have been filing jointly for years, you should calculate your taxes using both methods to see if filing separately would reduce your tax liability. If you filed jointly last year and you did not experience a change in circumstances that impacted your finances, then you may continue to file jointly.

Same-Sex Married Couples & Tax Filing

Married same-sex couples can now also file as married filing jointly, the choice that was denied to them earlier due to the existence of the Defense of Marriage Act (DOMA). Similar to heterosexual couples, filing as a single individual taxpayer is not an option for them now. Same-sex couples, however, must check the laws of the state in which they reside to determine their tax filing options. Many states still do not recognize same-sex marriage and may have specific rules for tax filing for same-sex couples.

Rules for Filing Separately When Married

To help taxpayers to determine which filing status will give them the most benefits, Fox Business discusses the rules for filing separately so that return filers can make an informed decision on whether to file jointly or separately:

Start by considering the disadvantages of filing separately and think of how many apply to your situation. Keep in mind that if you file separately, you and your spouse must choose to both take the standard deduction or both itemize – you cannot take separate approaches.

Tax Rates – Filing separately shifts your tax rate downward. In other words, higher tax rates will kick in at lower levels of income.

Deductions – Your standard deductions drop significantly when filing separately, and many itemized deductions are reduced through income phase-outs or eliminated entirely. Check the instructions for Schedule A and Form 1040 to determine how large the difference will be based on your income. Further details may be found on IRS Publication 501, ‘Exemptions, Standard Deductions, and Filing Information.’

Credits – Filing separately reduces or eliminates potential tax credits that are subtracted directly from your tax bill. For example, you cannot take the Earned Income Tax Credit (EITC), the Elderly or Disabled Credit, or the educational credits (American Opportunity Credit or Lifetime Learning Credit). The Child Tax Credit is still available but significantly reduced when filing separately.

Alternative Minimum Tax – Filing separately cuts your Alternative Minimum Tax (AMT) exemption in half, and makes it more likely that you will have to pay the AMT (which eliminates or reduces many deductions).

Benefits – Generally, more of your Social Security benefits are taxable when you file separately. When filing jointly, you and your spouse must combine incomes and benefits to determine the taxable portion of benefits, even if you or your spouse receives no benefits.

Community Property – Community property states such as California and Texas dictate which property is considered separate or joint (“community”) for tax purposes. Should you both itemize, you may be faced with a hideous pile of paperwork to split assets 50/50.
Those are pretty powerful arguments to file jointly. However, there are a few reasons to consider filing separately.

Questionable Tax Practices – You should file separately if your spouse is stretching, or outright breaking, the tax laws. Signing a joint return makes you responsible for paying any taxes, penalties, and fines that your spouse incurs but refuses to pay.

Separation/Divorce – Separating your finances as part of an in-process separation or divorce lends itself to also filing your taxes separately.

Income Adjustment – When itemized deductions require a threshold expense compared to income, filing separately makes sense if the savings are large enough. Consider a couple with a wide income gap and large out-of-pocket medical expenses. Jointly they would not be able to meet the 10% threshold, but the spouse with the lower income may be able to qualify separately and deduct some of the expenses.