Most married couples file jointly in order to claim tax deductions and credits that can lower their tax bill and put them in a lower tax bracket. But there are times when it is beneficial to file separately.
If one spouse has a lot of medical expenses and a low income, by filing separately, the partner with the doctor bills may be more likely to meet the 7.5 percent threshold that is needed to deduct medical costs. The partner with the higher income will have a higher threshold before he/she can start deducting medical expenses.
Additionally, when both partners sign a joint return, they are both legally liable for the tax bill and any issues that may come up. Therefore, if one spouse engages in questionable tax-filing techniques, it might be wise for the other partner to file separately.
The downside to married taxpayers who file separately are higher tax rates and the loss of many tax deductions and credits. These include:
- earned-income credit
- adoption expense credit
- child and dependent-care credit
- educational tax credits
- qualified education loan interest deduction
- child tax credit may be reduced
- capital gains losses that can be deducted will be cut in half
Furthermore, if one spouse itemizes, both must itemize, splitting the items to be listed on a separate Schedule A for each. The partner with few deductions would lose out if the amount is less than the standard deduction.
In choosing whether to file jointly or separately, married taxpayers must weigh the pros and cons and decide for themselves which is the best filing status. In most cases, filing jointly is more advantageous because of the availability of more tax deductions and credits and a lower tax rate.