Filing taxes as a married couple comes with several options, and choosing the right one can have a big impact on your tax bill. While many couples file jointly, some find that filing separately offers perks. Explore the pros and cons of each filing status in order to reap the best tax benefits!
The Basics: Married Filing Jointly vs. Separately
When you’re married, you have two choices for filing your tax return: married filing jointly (MFJ) or married filing separately (MFS). Most couples file jointly because it typically offers larger tax breaks. Filing jointly combines both spouses’ incomes, deductions, and credits into one return. This allows access to certain tax benefits, such as a higher standard deduction and eligibility for various tax credits. 1
However, there are situations where filing separately might be the better choice. Married filing separately means each spouse files their own tax return, reporting only their individual income and deductions. This can be helpful if one spouse has significant medical expenses, large deductions, or potential tax issues. Filing separately keeps each person’s tax situation distinct, but it can limit access to certain tax credits.
When Filing Separately Might Make Sense
Filing separately can be beneficial in certain circumstances, particularly when one spouse has high medical bills or large unreimbursed business expenses. The IRS allows you to deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). 2 If your AGI is lower when filing separately, you might be able to deduct more of those expenses.
Another reason to consider filing separately is to avoid liability for your spouse’s tax mistakes. If your spouse has complicated tax issues, such as unreported income or questionable deductions, filing separately keeps you from being responsible for those errors. In this case, it might be worth losing some tax benefits to protect yourself from potential penalties.
Drawbacks of Filing Separately
Filing separately does come with downsides. One of the biggest disadvantages is losing access to valuable tax credits and deductions. For example, filing separately disqualifies you from claiming the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit. You’ll also lose out on education credits, such as the American Opportunity Credit and the Lifetime Learning Credit.
In addition, the tax brackets for those who file separately are narrower. This means you could end up in a higher tax bracket, paying more in taxes than you would if you filed jointly. The standard deduction is also cut in half for married couples filing separately, reducing the amount of income you can shield from taxes.
Strategies for Maximizing Tax Benefits
If you and your spouse are considering filing separately, take the time to run the numbers for both filing statuses. Tax software or a tax professional can help you compare how much you’d owe under each option. Look closely at factors like medical expenses, unreimbursed business expenses, and any unique financial situations that might impact your decision.
In some cases, it might make sense to file separately for just one year. If one spouse had a particularly expensive medical year or large business losses, filing separately could make sense that year. Afterward, you can return to filing jointly once those expenses are no longer a factor.
If you’re filing separately, make sure both you and your spouse use the same method for claiming deductions. If one spouse itemizes deductions, the other must also itemize, even if the standard deduction would have been more beneficial. This rule can complicate things, so plan carefully to maximize your savings.
Choosing the Right Filing Status for Your Marriage
Deciding whether to file jointly or separately as a married couple depends on your unique financial situation. While filing jointly often provides the best tax benefits, certain circumstances may make filing separately a smart choice. By weighing the pros and cons, running the numbers, and considering your personal needs, you can choose the best strategy for minimizing your tax liability and maximizing your financial well-being.