Taxpayers can choose to use several different filing statuses for the tax year. Each option has advantages and disadvantages, depending on a person’s situation. Married Filing Jointly is the most popular filing status for married couples, which allows spouses to combine their income, deductions, and credits on one return. However, there are some circumstances where it may make more sense for couples to file separately. For example, if you suspect your spouse is hiding income or inflating deductions on a joint return, filing separately may be the best way to protect yourself from being held responsible for any unpaid taxes or penalties. This is because you will be individually responsible for your own reported income on a separate return rather than jointly with your spouse (under the law, this is called joint and several liability).
In addition, the married-filing-separately status also prevents couples from claiming some valuable tax breaks that are available to people who file single returns. This includes the credit for dependent care expenses, the student loan interest deduction, and the earned income tax credit. Generally, you should use this filing status only if there is a good reason to do so, such as an unusual discrepancy in your earnings or expenses that will result in a larger tax liability or refund if filed jointly.
How Married Couples File Taxes?
Many married couples file jointly because it can result in a lower tax bill and make it easier to prepare returns. However, there are situations when it may be more beneficial to file separately.
For example, filing separately can protect the innocent spouse from potential liability if one spouse suspects their partner of tax evasion. It also provides a buffer against the other spouse’s behavior impacting their financial situation. Regardless of whether you choose to file jointly or separately, New York Life recommends consulting a tax professional before making any decisions.
Married couples who file jointly are eligible for a number of benefits, deductions, and credits that aren’t available to those who file separately. These include the Earned Income Tax Credit, Child, and Dependent Care Tax Credit, and American Opportunity and Lifetime Learning Education Tax credits.
In addition, when married couples file jointly, they’re able to take the standard deduction or itemize their deductions depending on what makes the most sense for them. In contrast, those who file separately can only claim individual deductions if they choose to itemize or use Schedule A.
Overall, filing jointly makes the most sense for most married couples, but there are some instances where it might be more advantageous to file separately. For instance, Couples with large medical expenses or substantial itemized deductions might see significant savings by filing separately.
How Do Individual Filers File Taxes?
While the IRS strongly encourages married couples to file jointly, and many benefits of this status exist, filing separately may be wise in some situations. For instance, it can make sense for some couples to file separately if one spouse earns significantly more than the other and would qualify for substantial itemized deductions if they filed separately. Also, filing separately can help couples avoid a situation in which the IRS offsets their joint refund to pay debts such as back taxes or child support payments. In these cases, filing separately can protect the lower-income spouse’s tax refund from creditors.
Another case in which filing separately may be beneficial is if the couple lives in one of the community property states: Arizona, California, Idaho, Louisiana, Nevada, Texas, Washington, and Wisconsin. These states have their own rules for determining marital property, so it’s important to know them well before filing a return, Firth notes. In addition, if one spouse is in bankruptcy, filing separately can help them keep their refunds from being claimed by creditors. This is called innocent spouse relief, and the IRS has more information on its website about this process.