Typically, if you are married, filing jointly will be your best option when submitting your tax return to the IRS. However, taxpayers married at the end of the year can elect to file separately and there are several benefits to consider choosing this filing status.
No Joint Liability. Each spouse who signs a joint return is responsible for the accuracy of the return as well as the payment of the tax. A spouse who files separately is not responsible for reporting or paying tax on income earned by the other spouse. If your spouse is not claiming income that was earned, or perhaps is more aggressive than you’d like on deductions, you can distance yourself from future audits of his/her tax returns by filing separately.
Higher eligibility of deductions. Spouses with equal incomes will generally owe the same tax whether filing joint or separately unless one spouse has medical expenses, casualty losses or business expenses that are subject to limitations based on Adjusted Gross Income (AGI). Tax filers can deduct eligible medical expenses in excess of 7.5% of AGI, so if one spouse has a significant amount of medical expenses they may be deductible by filing separately, whereas the joint adjusted gross income would be too high for the deductions to qualify. The same goes for casualty and theft losses which can be deducted in excess of 10% of AGI. Other miscellaneous deductions such as employee business expenses and job-related education expenses can be deducted to the extent that they total more than 2% of a taxpayer’s adjusted gross income.
There are several drawbacks however, to filing your taxes separately.
Standard Deduction. If one spouse itemizes deductions, the other must also itemize and cannot claim the standard deduction. So this filing option will work best for two people who both have more itemized deductions than the standard filing separately deduction amount of $5,450 (an additional $1,050 is added if you are over age 65 or blind).
Cannot Claim Earned Income Credit. The Earned Income Tax Credit (EITC) is worth between $438 and $4,824 depending upon your income and the number of children you have. This is a significant amount of money if you qualify, but this credit is not available to anyone who is married and files separately.
Lost Education Benefits and Credits. The Hope scholarship and lifetime learning credits as well as the student loan interest and tuition and fees deduction cannot be claimed by married taxpayers who file separately. Again, this can be a significant amount of money for families who have children in college and who meet the income criteria.
Everyone’s personal situation is unique, so it is worth the extra time to carefully research your best filing option before completing your Federal tax returns.