When To File As Married Filing Separately

Love and taxes: When to file as married filing separately

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Love and marriage may go together like a horse and carriage, but the same applies to taxes. When a couple gets married, filing jointly allows for a substantial tax break. However, sometimes it’s wise for couples to file separately. 

If you’re preparing to file your taxes and want to know if you and your spouse should file separately, we’re here to help. You should know if you’re married and looking to file your taxes separately. 

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Filing-Status 101

The IRS created five filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying widow(er). Regarding married couples and their taxes, there are usually two routes couples can choose from: 

Filing together or separate 

Although married filing jointly is more popular, there are instances where it can be beneficial for couples to file separately. 

Before tying the knot, most taxpayers’ status was single. Single filers include unmarried people on the last day of the year or are legally separated from a spouse under a divorce or separation agreement and do not qualify for another filing status, per the IRS. After the nuptials, most married couples changed their filing status to married filing jointly. Under this arrangement, both spouses are equally responsible for the return and the taxes.  When filing a tax return as married filing jointly, a married couple uses the same tax return to report income, deductions, credits, and exemptions. 

With the married filing jointly status, your total combined tax liability is often lower than the sum of spouses' tax liabilities if they were filing separately. This is because of the increased standard deduction allotted to couples and other tax benefits exclusive to this filing status.

Reasons for Couples to File Separately

Though filing together presents a significant tax deduction, there are situations where it’s beneficial to file separately. Here are some advantages to filing your taxes separate from your spouse: 

• A higher tax Bracket when combining incomes

• The primary reason why filing separately may be beneficial is that both spouses have similar income levels, and their combined reported salaries climb to a higher tax bracket. The savings for changing the filing status is contingent on many factors, including the couple's investments and whether they have children, so the devil is in the details.

• Large differences in income

• Another reason couples decide to file separately is if they do not have children and one spouse has a much higher income. For example, if one spouse earns $200,000 and the other $45,000, it will allow the lower-earning spouse to file in a lower tax bracket and potentially claim some tax deductions that were not available with a joint return.

• The method of how spouses record deductions is a factor

• When a couple files their taxes separately, both spouses must select the same approach to recording deductions, even if one spouse would benefit from choosing the opposite method. For example, suppose one spouse decides to itemize deductions. In that case, the other spouse also has to itemize, even if their deductions are much less than the standard deduction. If one spouse’s itemized deductions are $30,000, and the other itemized deductions equal $5,000, the second spouse has to claim $5,000 on their 1040, not the higher standard deduction.  As a result, filing separately makes sense to reduce taxes only when one spouse’s deductions are big enough to compensate for the second spouse’s lower itemized deductions.

• Filing separately due to high unreimbursed health care costs

• It has become much more challenging to deduct out-of-pocket medical expenses on the tax form’s Schedule A in the past few years. The threshold to claim these expenses is more significant than 7.5% of your adjusted gross income.  Adjusted gross income is the total income you report subject to income tax. It is important to note that the source of funds is crucial when deducting medical expenses. The IRS explains that "if you and your spouse live in a noncommunity property state and file separate returns, you can include only the paid medical expenses. Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you unless you can show otherwise." Also, casualty losses must be more than 10% of AGI before claiming them as deductions. Generally, these are property losses caused by a car accident that was not your fault or extreme weather such as tornadoes, hurricanes, floods, and fires. The spouse who has incurred significant medical bills or property losses must calculate if the expenses reach 7.5% or higher of their AGI for the medical bills or 10% or higher for casualty losses against their own lower AGI. Then this spouse must decide if it is advantageous to file separate returns. If one spouse can lower their taxable income after this analysis, then individual returns might reduce the couple's overall tax burden.

• Filing separately to protect a tax return

• If you know that your spouse will have a large tax bill, selecting married filing separately allows you to keep your tax return. With separate returns, the IRS will not appropriate your refund to settle your spouse's tax bill. Individual returns also make sense to stop the IRS from confiscating a spouse's tax refund when the other is in arrears on child support payments.

• Other reasons for filing separately

• Couples who have separated and are divorcing may prefer to separate returns to avoid post-divorce issues with the IRS. Similarly, a spouse who disapproves of their partner's tax ethics may choose to establish a separate tax life. Thus, the ethical spouse will avoid any liability for the actions of their spouse.

Bottom Line

When couples deliberate on the proper tax filing status to choose, an important step is to calculate the tax return according to filing jointly and separately to ascertain which one provides either the most significant refund or lowest tax bill. Couples without dependents or education expenses can benefit from filing separately if one has a higher income and the other has substantial deductions. Other instances where separate returns may be helpful include divorce, separation, or avoiding liability from a spouse who is either not ethical about their taxes or has evaded paying taxes. 

If you do not know which method to file your taxes is best, it may be prudent to consult a tax advisor. At Taxfyle, we guarantee that you’ll find the right Tax Pro to help you during tax season. All you need to do is match is one and they’ll handle the work. Why spend hours filing your taxes when you can spend that time doing something else? Let one of our Pros file your taxes.