Married Tax Filing: Jointly vs Separately
It’s that time again. You’re getting those pesky texts from your accountant, the 1099’s are rolling in and you’re probably hiding under receipts you’ve stowed away for the last year.
If you’re married, it's important to know the advantages and disadvantages of filing jointly vs. separately to prevent an even more challenging filing season. Determining your eligibility for various ways to file your taxes doesn’t have to be complicated or overwhelming if you start early and know your role.
Should your spouse file jointly or separately?
The IRS often encourages those who are married to file tax returns together to maximize tax breaks and benefits where applicable. Whether you’re looking to catch a tax break on federal student loans or via the child tax credit, it’s important to have an armed arsenal of data to make an informed decision.
Generally you must file based on relationship status on the last day of the preceding calendar year. As for whether you file joint or separate and who claims what dependents, that will usually need to be addressed by the agreement of the parties to the divorce or Court order. Neither party can unilaterally decide what they are going to do without the risk of being called in front of the Court and possibly the IRS.
Are there advantages of filing jointly vs separately?
There are some scenarios where filing separately could be an advantage.
Joint filers end up receiving one of the highest standard deductions, giving you and your spouse the option to deduct a good chunk of income when you're calculating what part of your income is taxable. In 2022, married couples received a standard deduction of $25,900 compared to those who filed separately and received $12,950.
And the disadvantages?
Of course, there are natural consequences of filing your tax returns separately. Filing separately automatically disqualifies you from multiple tax deductions and credits. A separate file also creates a limited IRA contribution deduction. You would miss out on the student loan deduction for accruing interest.
Situations where you may benefit from filing separately
Navigating the legal aspects of federal income tax can be daunting, even if you consider yourself well-versed in the world of the IRS. Even though your tax responsibility is nearly always lower when you file jointly, you can encounter certain circumstances where filing separately is more beneficial for you and your spouse.
Out-of-pocket medical expenses to claim
The cost of healthcare in the United States is so astronomical that millions of people go into debt in an attempt to pay their medical expenses. If you or your spouse has a long history of
medical bills, filing separately gives you the opportunity to deduct those expenses above a certain threshold of your income. Reaching the adjusted gross income 7.5% threshold can qualify you for medical deductions if you claim just one income.
To protect your future from being liable for your partner's taxes
If you want to avoid being liable for your spouse's taxes and income, you might want to consider filing separately. Especially if divorce is likely down the road. Each person is responsible for the total tax that’s due. So while some couples may make and keep their finances separated, filing separately means that you’re no longer responsible if your spouse does not pay or commits tax fraud.
Saving for any emergency expenses down the road
If there’s anything life can teach you, it’s that anything that can happen, will. Preparing your bank account for car repairs, natural disasters, and other unforeseen life transitions and tribulations should be an important part of everyone’s finances.
Things like federal student loan debt can put so many stressors on joint income. So if you're searching for an opportunity to protect and preserve one of your incomes down the road, this is your chance. Filing separately can buy you and your spouse more time, especially if one of you has crippling debt or a special circumstance.
Regardless, it is important to understand that lawyers are neither tax attorneys nor accounts, so questions regarding potential tax benefits should go to your accounting team. From there we can address with opposing counsel whether the matter can be resolved by agreement or if a hearing is needed.
Connect with Busciglio, Sheridan, and Schoeb
No matter what stage of your marriage or separation you’re going through, Busciglio Sheridan & Schoeb are here with resources and support to help you get from one stage to next. Let us help you navigate your unique situation to ensure you have the support you need from day one.