Married couples have the option to file jointly or separately on their federal income tax returns. Undoubtedly, married couples during tax season have asked each other if they are filing advantageously, whether currently filing jointly or separately. The IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together. In the vast majority of cases, it’s best for married couples to file jointly, but there may be a few instances when it’s better to submit separate returns.
There are many advantages to filing a joint tax return with your spouse. The IRS gives joint filers one of the largest standard deductions each year, allowing them to deduct a significant amount of their income immediately. Joint filers also receive higher income thresholds for certain taxes and deductions – this means they can earn a larger amount of income and still qualify for certain tax breaks.
Generally, filing jointly will yield less due taxes and larger refunds. On the other hand, filing separately increases your tax rate and prevents you from claiming the following:
- Earned Income Credit (EIC);
- Child and Dependent Care Credit (in most cases);
- Adoption Credit (in most cases);
- Education benefits;
- The same benefit married filing jointly couples get for personal exemptions, itemized deductions, the Child Tax Credit, and capital losses (all of these deductions are reduced by half);
- Itemized deductions if your spouse has already claimed the standard deduction, or the other way around.
Couples who file jointly may deduct two exemption amounts from their income and qualify for multiple tax credits such as the:
- Earned Income Tax Credit;
- American Opportunity and Lifetime Learning Education Tax Credits;
- Exclusion or credit for adoption expenses;
- Child and Dependent Care Tax Credit.
Also, if you live in community property states like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you must address community property allocations and adjustments, increasing the complexity of calculating your taxes. Keep in mind that only taxpayers who were still legally married as of December 31, 2015 are able to file as married, whether jointly or separately.
The main reason you would want to file separately is to protect yourself from a spouse that may file a tax return reporting inaccurate tax information, or in circumstances where your spouse refuses to file a joint or any return. Also, if you file separately, the IRS may not seize your tax refund to pay your spouse’s debts. Also worth noting is that filing jointly as an innocent or injured spouse can curtail seizures of tax refunds.
It therefore makes sense that married taxpayers prepare their taxes both ways and thereby determine which filing status is more advantageous. You should also consider the effects on your state return as there are times when taxes saved on a state return more than compensate for the money lost on the federal and vice-versa.
In contrast, married couples filing separately receive few tax considerations. Separate tax returns may yield a higher tax and rate. The following are some disadvantages to filing separately:
- In 2015, married filing separately taxpayers only receive a standard deduction of $6,300 compared to the $12,600 offered to those who filed jointly;
- The capital loss deduction limit is $1,500 when filing separately, instead of $3,000 on a joint return;
- Separate filers are automatically disqualified from many tax deductions and credits, as mentioned above;
- Separate filers cannot take the deduction for student loan interest, or the tuition and fees deduction;
- Separate filers are limited to a smaller IRA contribution deduction.
There are unusual and rare situations where filing separately may help you save on your tax return. Spouses with a large amount of out-of-pocket medical expenses to claim may benefit since the IRS only allows you to deduct the amount of these costs that exceeds 10% of your adjusted gross income (AGI). Filing separate returns in this situation may be beneficial if it allows you to claim more of your available medical deductions by applying the 10% threshold to only one of the spouses’ income.
A temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 exists for individuals age 65 and older and their spouses which allows them to deduct unreimbursed medical care expenses that exceed 7.5% of adjusted gross income. This threshold remains at 7.5% of AGI for qualifying taxpayers until Dec. 31, 2016.
To reiterate, the best way to determine if you should file jointly or separately with your spouse is to prepare the tax return both ways. Double check your work and compare the net refunds or balances due from each method. If you are still unclear about which method or you believe that you are incapable of accurately completing such a task, you should enlist the assistance and expertise of a tax professional.
If you are married and have questions related to the optimal and most advantageous filing status for you and your spouse, call the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
