Married couples have the choice of filing their taxes jointly or separately. What is the best option for you and your spouse? Generally, it is to file jointly – but there are several factors to consider before making your choice.
Obviously, the first hurdle is that you have to be married. For tax purposes, you are considered married if you were married on the last day of the tax year, even if you are in the process of a divorce that has not yet been finalized. Joint filing status is not available to couples in civil unions or domestic partnerships.
Thanks to the Supreme Court, married same-sex couples must file their federal taxes jointly or as a married couple filing separately – single status is not an option.
Assuming you meet the marriage criteria, how do you decide? Start by considering the disadvantages of filing separately and think of how many apply to your situation. Keep in mind that if you file separately, you and your spouse must choose to both take the standard deduction or both itemize – you cannot take separate approaches.
- Tax Rates – Filing separately shifts your tax rate downward. In other words, higher tax rates will kick in at lower levels of income. The Tax Cuts and Jobs Act of 2017 (TCJA) changed the tax brackets.
- Deductions – Your standard deductions drop significantly when filing separately, and many itemized deductions are reduced through income phase-outs or eliminated entirely. Check the instructions for Schedule A and Form 1040 to determine how large the difference will be based on your income. Further details may be found in IRS Publication 501, "Dependents, Standard Deduction, and Filing Information." For tax year 2019, the standard deduction has increased from $12,000 to $13,850 for single filers, and from $24,000 to $25,700 for married couples filing jointly. Many itemized deductions have been eliminated, but there is no longer a collective limit on your itemized deductions.
- Credits – Filing separately reduces or eliminates potential tax credits that are subtracted directly from your tax bill. For example, you cannot take the Earned Income Tax Credit (EITC), the Elderly or Disabled Credit, or the educational credits (American Opportunity Credit or Lifetime Learning Credit). The TCJA has raised the Child Tax Credit significantly for tax years 2018-2025. For the Child Tax Credit, to receive the maximum $2,000 per child, your income cannot exceed $400,000 when filing jointly. If your combined income exceeds $400,000 and one spouse's income is below $200,000, filing separately might mean you can claim more of the credit.
- Alternative Minimum Tax – Filing separately cuts your Alternative Minimum Tax (AMT) exemption in half, and makes it more likely that you will have to pay the AMT (which eliminates or reduces many deductions). The TCJA has kept this rule in place, but raised the exemption amounts to $111,700 if married filing jointly and $55,850 if married filing separately. Single filers have a higher exemption amount of $71,700.
- Benefits – Generally, more of your Social Security benefits are taxable when you file separately. When filing jointly, you and your spouse must combine incomes and benefits to determine the taxable portion of benefits, even if you or your spouse receives no benefits.
- Community Property – Community property states such as California and Texas dictate which property is considered separate or joint ("community") for tax purposes. Should you both itemize, you may be faced with a hideous pile of paperwork to split assets 50/50.
Those are pretty powerful arguments to file jointly. However, there are a few reasons to consider filing separately.
- Questionable Tax Practices – You should file separately if your spouse is stretching, or outright breaking, the tax laws. Signing a joint return makes you responsible for paying any taxes, penalties, and fines that your spouse incurs but refuses to pay.
- Separation/Divorce – Separating your finances as part of an in-process separation or divorce lends itself to also filing your taxes separately.
- Income Adjustment – When itemized deductions require a threshold expense compared to income, filing separately makes sense if the savings are large enough. Consider a couple with a wide income gap and large out-of-pocket medical expenses. Jointly, they would not be able to meet the 10% threshold, but the spouse with the lower income may be able to qualify separately and deduct some of the expenses.
If you are not sure, do a trial run of your taxes both ways. However, most couples will find filing jointly to be the simpler and most economical path.
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