If you’re married, choosing whether to file a joint or separate tax return is contingent primarily on your specific circumstances. You may want to file a joint return for the sake of convenience, but doing so may not be the best option.
Fiscally smart couples weigh the pros and cons of filing jointly versus filing separately. This is done by completing both a joint and separate return and choosing the option that provides the most tax benefits.
In some cases, filing separately is the better option if you want to lower your tax liability.
Here is a breakdown of your filing options:
Married Filing Jointly
According to the IRS, you would benefit more from filing jointly if you and your spouse don’t itemize your deductions and claim the standard deduction, which could be higher when filing jointly. You may pay less in taxes if one of you earns significantly more than the other one, because the higher income is taxed at a lower rate. Joint filers also qualify for tax benefits that aren’t available to other filing statuses.
Married Filing Separately
Married filing separately may provide a greater tax benefit than filing jointly if you and your spouse have taxable income and you both have significant itemized deductions such as medical expenses, personal casualty losses, investment expenses or business expenses. These deductions are reduced by a percentage of your adjusted gross income (AGI), which reduces your AGI. The lower AGI could result in significantly higher allowable deductions.
If you choose to file separately, keep in mind that state laws govern how married filers split income and deductions on their tax returns. Filers living in a community state such as California, Texas and Nevada must split income and deductible expenses 50/50, regardless of which spouse earns the income. Each spouse can claim their own personal exemption and allocate exemptions for dependents however they choose.
You also need to consider whether losing the following tax benefits are worth filing separately:
- Reduction in amounts of exemption and itemized deduction
- Possible higher tax rate
- No longer eligible for the child and dependent care expense credit. The allowable deduction under an employer’s dependent care assistance program will be reduced.
- Cannot take the earned income credit.
- Cannot take education credit, student loan interest deduction or tuition deduction
- Reduction in child tax credit
- Reduction in retirement savings contribution credit
- Cannot claim the standard deduction if spouse itemizes deductions
- Standard deduction is reduced by half the amount it would be if you were filing jointly
- Reduction in first-time homebuyer credit to half the amount it would be if filing jointly
- Can no longer claim credit for the disabled or elderly, and will have to include more of any Social Security benefits on your return
- Reduction in the capital loss deduction limit
- Can no longer deduct interest income from U.S. savings bonds used for higher education