Married couples have the option of filing taxes as either “Married Filing Jointly” or “Married Filing Separately” and both options are valid under different situations. The IRS has made it more attractive in most situations for married couples to file their taxes together, but in some cases the couple can actually realize savings if they file two returns instead of one.
When Married Filing Jointly Makes Sense
If you and your spouse are income earners, there is a large disparity between your two incomes and you meet the criteria for filing jointly, there is a greater chance of savings filing jointly than filing separately. This is because while the person with the lower income may escape the higher tax brackets, the other person is likely to meet the higher bracket sooner, because there is a lower threshold for the 33% tax bracket for those who are married but filing separately. For instance, if John earns $170,000 a year and his wife Janet earns $70,000 a year they have a combined income of $240,000. If they filed as a married couple they would still be in the 28% tax bracket, however if they filed separately Janet would pay 28% while Jack would pay 33% of his income in taxes so together they would pay more.
There are also many deductions and credits that are only available to those who are married and are filing jointly. Deductions for education loan interest, adoption expense claims, credits for the elderly and disabled are all only eligible to those who file jointly.
When Married Filing Separately is the Better Option
However, there are a few instances when it may be better to file separately. When couples are separated but not yet divorced they may want to start filing separately for personal reasons and this might be the smart thing to do in such a situation. Also if your spouse insists on filing a very “creative” tax return to escape the tax bite, then you can opt to file separately to avoid liability in case the IRS decides to investigate the claim. Another reason to file separately is if one spouse is in public life and so must disclose all the income they make. To avoid having your income in the public domain you can opt to file a separate return and hold on to your right for confidentiality.
The reasons mentioned above are all personal or emotional reasons but there are instances when it actually makes financial sense to file a separate tax return. If one partner has extensive medical expenses to claim it might be better to file separately because it is easier to reach the 7.5% portion if your incomes are reported separately.
The decision to file taxes separately or jointly is not always a clear cut one. It is a mistake to assume that because you are married you would benefit from filing your taxes together. If you are not sure which way would save you money or work in your benefit in other ways consult a tax professional for advice.