Did you know that married couples are eligible for several significant tax breaks when they file their yearly tax returns together?
In a majority of cases, the benefits of filing jointly are something that married couples will want to take advantage of. However, there are some cases where filing separately can have more advantages than filing together.
If you’re unsure whether you should use joint or separate filing, read on. We’ll explain the benefits and help you decide if your situation merits using single filing to get your best refund.
Am I Eligible to File Jointly?
Even if you were married on the last day of the tax year, you still qualify to file jointly and receive the benefits and deductions allotted to married filers. This means you can take advantage of a joint return even if your incomes were not intermingled for an entire tax year.
Couples in domestic unions or civil partnerships are not eligible for joint filing.
Joint Filing Advantages
If you file with your spouse, there are many opportunities for tax breaks that you can take advantage of. In fact, the IRS gives those filing joint returns one of the best standard deductions you can take each year. This allows you to deduct a sizable amount of both incomes right from the start.
Couples filing together can typically take two exemption amounts, one from each income pool. They also might qualify for multiple tax credits more easily. Some of those tax credits include:
- American Opportunity Tax Credit
- Lifetime Learning Education Tax Credit
- Earned Income Tax Credit
- Exclusion or Adoption Expenses Credit
- Child and Dependent Care Tax Credit
Joint filers benefit from a higher income threshold for certain kinds of taxes and deductions.
This means they can earn a larger income as a unit and still earn extra tax breaks. This is especially beneficial if one person of a couple has a significantly lower income than the other because it provides for the higher earner to be eligible for some of the same credits as their spouse even if they typically would not qualify.
Reasons to File Separately
There are a few situations where it can be more advantageous to file separate tax returns for married couples. In these more rare situations, the benefits of filing individually may outweigh the exemptions and credits that a couple is eligible for.
For example, if one spouse has a large quantity of out-of-pocket medical expenses to claim for any given tax year, you would better benefit from filing separately.
The main reason for this choice is that the IRS only allows someone a to claim medical costs if they exceed 10% of their adjusted gross income.
If your combined adjusted gross income is too high, those medical bills may become ineligible because they account for less than 10% of your total incomes. If you or your spouse do have medical bills that total over that percentage, that person could benefit more if they file alone.
Another occurrence is if one spouse owes unpaid taxes or child support. The IRS could potentially use the total refund to pay off some of these amounts, resulting in a larger chunk of your joint tax return to be leveraged against these debts.
In addition, either spouse currently owing student loan payments could see their monthly bill rise if filing jointly. The loan may take the combined AGI into consideration when determining a payee’s total monthly payment, so filing separately could keep your payments lower.
Consequences of Separate Tax Returns
The standard deduction you will receive as a married individual is far less than the one available to you as a couple. Consider these disadvantages before you file:
- The 2017 standard deduction for a married person filing separately was only $6,350. Couples who filed jointly received a deduction offer of $12,700. In 2018, that number will increase to $12,000 for single filers and $24,000 for couples filing jointly.
- When you file separately, you may be limited to a smaller IRA contribution deduction than if you were to file jointly.
- A married person filing singly will also lose the ability to take a deduction for student loan interest, as well as the tuition and fees deductions.
- Even when filing separately, each spouse must take the same deduction. Should one of you file an itemized deduction as opposed to the standard, the other spouse must follow suit.
- You may face higher taxes on your Social Security benefits if you choose not to file jointly.
Deciding on Joint or Separate Filing
While it is usually better to file jointly with your spouse, there are rare occasions where the benefits of separate filing may be better for you. Each tax situation is unique, so you must consider your personal finances in order to determine which status is to your advantage.
The best way to figure out which method works best for you and your spouse is to prepare your returns both ways. Double check all of your calculations and record your net refunds or due balances for both methods. The results should make clear if joint or separate filing will give you and your spouse the biggest tax savings.
If you’re looking for more tax advice or have questions on which way you should file, visit the Tax Relief Professional blog.
We have information on how to avoid common tax mistakes, changes in tax law that could impact your return, and help to guide you to the biggest refund available. All free of charge.