Key Takeaways
- Though most married couples file joint tax returns, filing separately may be better in certain situations.
- Couples can benefit from filing separately if there’s a big disparity in their respective incomes, and the lower-paid spouse is eligible for substantial itemizable deductions.
- Reasons to file separately can also include separation and pending divorce, and to shield one spouse from tax liability issues for questionable transactions.
- Filing separately does carry disadvantages, mainly relating to the loss of tax credits and limits on deductions.
The Disadvantages of Filing Separately
There are a number of reasons why the married-filing-separately condition is rarely chosen by couples. The biggest reason is the forfeit of a total of major tax credits and deductions that are available to those who file jointly, such as :
Reporting deductions
Another limitation when it comes to married filing individually : Both spouses must choose the same method acting of recording deductions, even if one of them would be better off doing so under the antonym method acting .
For example, if one spouse decides to itemize deductions, the other spouse must do so adenine well, even if their enumerate deductions are less than the standard deduction. If one spouse has itemized deductions of $ 20,000 and the other has only $ 2,500, the second spouse must claim that $ 2,500 rather than the larger standard tax write-off. This means that filing individually is a good mind from a tax-savings point of view merely when one spouse ‘s deductions are large enough to make up for the second spouse ‘s lost deduction come .
Reasons for Couples to File Separately
There are a issue of situations, however, in which it is best for a couple to file individually :
disassociate or separation
legal separations were the original rationale for the universe of the “ file individually ” status. For a kind of reasons, divorcing or separated couples may not be bequeath to file their taxes jointly .
Liability issues
Filing individually besides may be appropriate if one spouse suspects the other of tax evasion. In that case, the barren spouse should file individually to avoid likely tax indebtedness ascribable to the behavior of the other spouse. This status can besides be elected by one spouse if the early refuses to file a tax return at all .
divers yield or deduction scales
Protecting yourself from a minus result is n’t the only rationality to file individually. today, even the most happily marry couple may come out ahead by choosing this route.
The elementary example is with childless couples, in which matchless spouse has a well higher income and the early spouse has substantial electric potential enumerate deductions .
For exercise, consider a position in which one spouse is a doctor of the church earning $ 200,000 a year, while the other is a teacher earning $ 45,000. The teach spouse has had surgery during the year and paid $ 12,000 in unreimbursed medical expenses. The IRS rule for deducting unreimbursed medical expenses dictates that lone expenses in excess of 7.5 % of the file clerk ‘s AGI ( once 10 % for most taxpayers ) can count as a assorted enumerate subtraction .
- If the couple files jointly, only expenses in excess of $18,375 ($245,000 x 7.5%) will be deductible. Therefore, none of the teacher’s medical expenses could be deducted because they total less than $18,375.
- But if the couple filed separately, the cost would easily exceed the teacher’s threshold for medical deductions, which would be $3,375 ($45,000 x 7.5%), based only on the teacher’s AGI. This would leave an eligible deduction of $8,625 for the teaching spouse to claim on Schedule A of Form 1040 (the tax return).
even if, in a normal year, it would make more feel for this couple to file jointly, in the class of the large medical expense, filing individually might make more smell .
The beginning of funds is highly important in this type of situation. According to the IRS, “ If you and your spouse live in a noncommunity property state and file separate returns, each of you can include alone the medical expenses each actually paid. Any medical expenses paid out of a joint crack score in which you and your spouse have the same matter to are considered to have been paid equally by each of you, unless you can show differently. ”
The Bottom Line
There are many factors involved in determining whether it is better for married couples to file individually or jointly. When a couple is uncertain of which filing status to choose, it makes sense to compute the tax return both ways to determine which will give the biggest refund or lowest tax bill .
In general, couples with no dependents or education expenses can benefit from filing individually if there ‘s a big disparity in their respective incomes, and the lower-paid spouse is eligible for substantial itemizable deductions .
by and large, other instances when filing individually is appropriate are related to divorce, separation, or relief from liability for tax fraud or evasion .
If you are uncertain whether the married-filing-separately strategy is allow for you, consult your tax adviser. You never know whether there are any tax deductions you may be missing .
