05 July 2015

I am commonly asked whether it is more advantageous for a married couple to file their tax return(s) jointly or separately. It's a good question. It shows two things; the person asking it is considering legal options to minimize their tax burden, and the person has knowledge that there are filing status options within the tax code. I like to work with thinking people.

Unfortunately, my answer almost always disappoints. It is usually more advantageous to file jointly. This answer disappoints because the person asking it has been filing jointly, and he or she hoped that filing separately would lower their taxes in the future. Sorry to say joint returns are almost always the way to go.

Filing separately reduces or eliminates eligibility for several adjustments, deductions, and credits and normally results in a higher amount of tax being owed. Filing separately adversely impacts the following tax benefits:

  1. In most cases you cannot claim the credit for Child and Dependent Care Expenses.
  2. You cannot claim the Earned Income Credit.
  3. You cannot claim any education credits.
  4. You cannot claim the adjustment for Student Loan Interest.
  5. You cannot claim the exemption for interest on EE bonds used for education.
  6. Your Child Tax Credit is half what it would be on a joint return.
  7. Your Capital Loss limit is cut in half.
  8. Your Saver's Credit is cut in half.
  9. You cannot claim losses on real estate rental property (if you still live with spouse)
  10. Your Alternative Minimum Tax Exemption is cut in half.
  11. Your standard deduction is cut in half.
  12. If your spouse itemizes you can't take the standard deduction at all.
  13. You expose more Social Security to being taxed.
  14. You cannot claim the adoption credit, and if you received adoption benefits from your employer they are now taxable.
  15. Not really a tax benefit, but if you file separately your tax preparer will charge you for preparing two returns. Jointly, just one.

That's quite a list. Just looking at it makes it clear to me that if you are married the government wants you to file jointly.

There are, however, some circumstances that make filing separately more advantageous. The most common scenarios for this are when:

  1. One spouse has a lien against his or her tax refund(s) for failing to pay past taxes, non-payment of child support, or defaulting on federal student loans. When spouses file jointly they assume mutual responsibility for each others taxes. If one spouse has a lien against their taxes the refund from both spouses will go to pay off that debt if they file jointly. Filing separately protects the refund of the spouse without the tax lien.
  2. You suspect your spouse is cheating on their taxes. If you file jointly both spouses sign the return and are liable for its accuracy. If you suspect (or know) your spouse is filing fraudulently you should file a separate return to protect yourself from penalties.
  3. In rare circumstances a smaller tax (larger refund) can occur. This can happen when there is a large disparity between the spouses' incomes and there are significant deductions. For example, A surgeon (AGI $300,000) and a school teacher (AGI $55,000) are married. The school teacher has $25,000 in medical bills. If they file jointly the medical bills do not exceed 10% of their combined AGI ($35,500) and are therefore not deductible. If the school teacher files separately and claims all of the medical bills then the amount over $5,500 (10% of AGI) is deductible (a deduction of $19,500). Depending on the rest of their tax situation this could lead to a lower overall tax bill for this married couple.

As I said, there are significant tax incentives for married couples to file jointly, so it is most often in the best financial interests of spouses to file a joint tax return. There are some circumstances where filing separately is more advantageous. If you think this might apply to you it is best to consult a tax professional to discuss your situation.

Disclaimer

Information in the Tax Blog is current as of the day it was posted. Tax laws change frequently, and it is likely that as time passes acts of Government will make some of the older blog content out of date.

The information provided is for education purposes only. It is general in nature and may not pertain to the Reader's situation. Every taxpayer's circumstances are unique. Reader's are urged to do some research or talk to a tax professional before acting on any of the information posted in this blog.

Paul D. Allen is a proud member of the National Association of Enrolled Agents, the National Association of Tax Professionals the Financial Planning Association of Hampton Roads, and the National Association of Personal Financial Advisors. You can read more about Paul's background here.

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Common Acronyms

ACTC - Additional Child Tax Credit

AGI - Adjusted Gross Income

AMT - Alternative Minimum Tax

APTC - Advanced Premium Tax Credit

AOC - American Opportunity Credit

CTC- Child Tax Credit

EIC - Earned Income Credit

HoH - Head of Household

LLC - Lifetime Learning Credit

MFJ - Married Filing Jointly

MFS - Married Filing Separately

MAGI - Modified Adjusted Gross Income

PIM - Plan of Intended Movement

PTC - Premium Tax Credit

QC - Qualifying Child

QHEE - Qualifying Higher Education Expenses

QR - Qualifying Relative

QW - Qualifying Widow(er)

 

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