Filing Separately Does Not Mean “We Are Through!”

Mon Jul 19, 2010, 4:19 am | 2 Comments

You still have over 5 months to start filing your taxes. As married couple, you might want to think about whether to file jointly or separately. Research by experts shows that the most favorable way for a married couple to file their taxes is not necessarily a joint tax return. If you are married, don’t assume that you will always save money by filing jointly. In most cases, it turns out to be true that you would save. But there are cases where you are better off filing separately while still in love and intact in your marriage.

The tax rate for couples who file separately may be higher but the tax bill could be lower. It is, however, better to file a joint return when only one spouse has income. But when both spouses have income, a separate return may result in a lower combined tax bill, thus saving you both money.

What’s important to look at is the AGI…

On a joint return, it’s the combined AGI (Adjusted Gross Income) of you and your spouse that counts when figuring the medical or miscellaneous threshold. On a married filing separately return, again it’s the AGI of the spouse who incurred the expense that counts. It may be easier for one spouse alone to meet this threshold, especially when one spouse makes much more.

Understand the marriage penalty

Folks often make the mistake, when they hear this expression, of thinking that the married filing separately status is more favorable than joint status because of the marriage penalty.

In most cases, the final tax bill for two single people living together will be lower than that of a married couple who files separately, even though each individual has the same income as the corresponding person from the other pair. A married couple filing separately is therefore subject to the marriage penalty because that couple pays more than two single people with the same income.

Allocate deductions

When considering which status to use for filing, keep in mind that some expenses, even though they are joint, can be entirely deducted by the spouse who will reap the most tax benefit. State taxes paid can be allocated between spouses in any proportion you choose. Also, dependent children can be claimed by either parent.

There may be non-tax reasons…

There are other circumstances that may affect your decision to file a separate return. You may have a rocky marriage or could be separated and living apart from your spouse. Sometimes it just so happens – and more frequently I might add – one spouse does not want the other spouse to know how much income there was over the year, despite the tax consequences.

In a Nutshell
You could start practicing and comparing different status returns using tax software. It will take you less than 15 minutes to do the comparison and see how you can reduce the tax bill sting.

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