Why Would You File Separately When Married
By using the Married Filing Separately filing status, you will keep your own tax liability separate from your spouse’s tax liability. … If you want to protect your own refund money, you may want to file a separate return, especially if your spouse owes child support, student loan payments, or back taxes.
A Joint Return Wouldnt Lower Your Tax Bill Or Increase Your Refund
Filing separately doesn’t present any real drawback if the combined taxes that are due on two separate tax returns are the same as, or very close to, the tax that would be due on a joint return. You’ll receive protection against liability, even if you don’t have any particular reason to worry about that.
You Don’t Trust Your Spouse
A very good reason good reason to file separately is because you don’t feel comfortable signing a joint tax return with your spouse, which both spouses must do when filing jointly. When you file jointly, you take full responsibility with your spouse, and both signers are responsible for the completeness and accuracy of the entire tax return, and each will each bear full responsibility to the IRS for any additional tax, penalty or interest due on an incorrect tax return.
If you don’t want to merge your tax life with your partner, choosing the separate filing status offers a degree of financial protection because you’re responsible only for your own separately filed tax return.
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You Have Liability Concerns
Both spouses are “jointly and severally liable” for the accuracy of a jointly filed tax return. They’re also jointly and severally liable for any resulting taxes that are due on that return. The IRS can collect tax debts and penalties from each of you. Both of you are equally responsible for any errors or omissions on the return.
Filing separately is one way to limit your liability if you don’t trust your spouse. Perhaps your spouse has outstanding debts, such as back taxes or past-due child support, and you dont want your refund to be seized to pay them.
Situations Where The Tax Calculation Is Better If Filing Separately
Medical expenses and charitable deductions are the two main deductions that are limited by Adjusted Gross Income . For medical expenses, you’re only able to deduct to the extent the expenses exceed 10% of your AGI. In the example below, consider a situation where one spouse has an AGI of $100,000.00 with medical expenses of $70,000.00. The other spouse has an AGI of $250,000.00 with total itemized deductions of $80,000.00. Remember if one spouse itemized, the other spouse may not take the standard deduction. The examples below show the spouse’s taxes due for married filing separately compared to married filing jointly filing status.
As you can see, here, the spouses had tax savings due to filing separately. This is a rare case. Usually, the spouses would have done better by filing a joint return. In this case, the higher itemized deductions due to Spouse 1 filing separately was enough to tilt in favor of married filing separately. Even with high medical deductions available filing separately, the married filing jointly side was able to stay in a lower tax bracket. This is not always the case. You have to run the calculations on a case by case basis to see which method is better.
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Standard Deduction For Married Filing Separately
As a result of the Tax Cuts and Jobs Act of 2017, the standard deduction rose substantially in the 2018 tax year.
A standard deduction is the portion of income thatâs not subject to tax, thereby reducing taxable income. The IRS allows tax filers to take a standard deduction. However, the deduction amount is dependent on your filing status, age, and whether you are disabled or claimed as a dependent on someone elseâs tax return.
For the 2021 tax year, the standard deduction for single taxpayers and married couples filing separately is $12,550. For heads of households, the deduction is $18,800, while for married couples filing jointly, it is $25,100.
For the 2022 tax year, the standard deduction for single taxpayers and married couples filing separately is $12,950. For heads of households, the deduction is $19,400, while for married couples filing jointly, it is $25,900.
As a result, one spouse must have significant miscellaneous deductions or medical expenses for the couple to gain any advantage from filing separately.
If you and your spouse both generated taxable income, calculate your tax bill as a joint and separate filer before filing, to determine which of the two will save you more money.
The Disadvantages Of Filing Separately
There are a number of reasons why the status is seldom chosen by couples. The biggest reason is the forfeiture of a number of major tax credits and deductions that are available to those who file jointly, such as:
- Adoption credit
- All deductions and credits of every kind relating to education, such as the American opportunity and lifetime learning credits, student loan interest deduction, and tuition and fees deduction
- Traditional IRA deduction phaseout between a lower adjusted gross income range of $0-$10,000
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How Married Filing Separately Status Impacts Taxes
But MFS status can be somewhat more beneficial for taxpayers who want to claim the itemized deductions with income threshold requirements. The medical expense deduction is only available for the portion of your expenses that exceed 7.5% of your adjusted gross income as of the 2021 tax year, the return youll file in 2022. This can be a much lower threshold to meet on one income than on two combined incomes when you file jointly.
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Who Should Claim Child On Taxes When Not Married
Only one parent can claim the children as dependents on their taxes if the parents are unmarried. Either unmarried parent is entitled to the exemption, so long as they support the child. Typically, the best way to decide which parent should claim the child is to determine which parent has the higher income.
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Can I File My Taxes Married But Separate
Can i file my taxes married but separate? Married couples have the option to file jointly or separately on their federal income tax returns. The IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together.
Is it illegal to file separately if you are married? In short, you cant. The only way to avoid it would be to file as single, but if youre married, you cant do that. And while theres no penalty for the married filing separately tax status, filing separately usually results in even higher taxes than filing jointly.
What happens if I file my taxes separately if married? By using the Married Filing Separately filing status, you will keep your own tax liability separate from your spouses tax liability. When you file a joint return, you will each be responsible for your combined tax bill .
Can you be married and live separately taxes? If youre married filing separately and living apart, you wont have to cover your spouses tax liability. But if youre married filing jointly, even if youre living apart, you still have a joint tax liability with your spouse. This means that both of you are responsible for paying the taxes that are owed.
How To File Taxes If Married But Living Separately
You may be wondering whether its better to file taxes jointly or separately if youre married but living separate lives. This article outlines when filing jointly makes more sense and when its better to file separately. Its not always easy to decide if filing jointly is the right option, but its possible in some situations. Read on to learn more about the differences between filing jointly and separately.
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Diverse Pay Or Deduction Scales
Protecting yourself from a negative outcome isn’t the only reason to file separately. Today, even the most happily married couple may come out ahead by choosing this route.
The primary instance is with childless couples, in which one spouse has a considerably higher income and the other spouse has substantial potential itemized deductions.
For example, consider a situation in which one spouse is a doctor earning $200,000 a year, while the other is a teacher earning $45,000. The teaching spouse has had surgery during the year and paid $12,000 in unreimbursed medical expenses. The IRS rule for deducting unreimbursed medical expenses dictates that only expenses in excess of 7.5% of the filer’s AGI can count as a miscellaneous itemized deduction.
- If the couple files jointly, only expenses in excess of $18,375 will be deductible. Therefore, none of the teacher’s medical expenses could be deducted because they total less than $18,375.
- But if the couple filed separately, the cost would easily exceed the teacher’s threshold for medical deductions, which would be $3,375 , based only on the teacher’s AGI. This would leave an eligible deduction of $8,625 for the teaching spouse to claim on Schedule A of Form 1040 .
Even if, in a normal year, it would make more sense for this couple to file jointly, in the year of the big medical expense, filing separately might make more sense.
Filing Separately To Save With Unforeseen Expenses
Adjusted gross income also determines if a couple can use un-reimbursed health care costs and casualty losses on Schedule A to save taxes.
- Unless out-of-pocket medical expenses exceed 7.5% of AGI for 2021, they don’t qualify as a deduction.
- Casualty losses must also total more than 10% of AGI and occur in a federally declared disaster area.
The spouse with the loss or substantial medical outlay calculates deductibility against his or her own lower AGI when the couple files separate returns. When one spouse can lower taxable income this way, married filing separately might trim a couple’s overall tax burden.
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Quirks In State Law Can Trip You Up
Be aware of sensitive areas of state tax law. They can cost you.
For example, in Anne and Jacks case, the couple will have to take care if Anne plans to claim a homestead exemption on her Florida residence. Because the exemption is a valuable one, Florida tax authorities tend to take fairly aggressive positions as to who is eligible to claim it.
Florida allows only one homestead exemption anywhere per individual or family unit. In a 2016 court case, a wife claimed an exemption on a home she solely owned in Florida, while her husband claimed a homestead exemption for a home he solely owned in Indiana. Each spouse was a legal resident of the state where they claimed their respective exemption.
However, the court found that because the couple comingled their finances, the wife was receiving the benefit of her husbands exemption, even though she did not jointly own his Indiana house. Instead of claiming homestead exemptions in both states, Jack and Anne should decide which exemption is more valuable and forgo the other one.
Especially for long-term separations, you may also need to consider the potential impact on your estate planning because some states impose own estate or inheritance taxes. Jack and Anne are lucky neither Georgia nor Florida imposes such a tax.
Rebecca Pavese, CPA, is a financial planner and portfolio manager with Palisades Hudson Financial Groups Atlanta office.
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Get A Lower Student Loan Repayment
If youre on an income-based repayment plan for a federal student loan, in most cases, the payment will be based on only your income, and not your spouses, if you file separately. But filing separately also means you cant take the student loan interest deduction or education credits, like the American opportunity tax credit or lifetime learning credit.
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Using Miscellaneous Deductions By Filing Separately
Miscellaneous deductions can lower taxable income, but in order to enter them on Schedule A, they must add up to more than 2% of adjusted gross income .
- Spouses with union dues, job-search costs, tax-preparation fees and un-reimbursed business expenses may find their miscellaneous deductions don’t qualify when their higher combined income raises their AGI.
- A spouse who travel frequently for business could rack up a sizable tally in airline fees for baggage and itinerary changes that makes the miscellaneous deduction worth pursuing.
Beginning in 2018, these types of miscellaneous expenses are no longer deductible.
Income Requirements For Married Filing Separately
Some people arent required to file a federal income tax return if they meet certain age and income requirements for their filing status. But most separate filers will have to file a federal income tax return.
Thats because the IRS requires people with a married-filing-separately status to file a return if their gross income was at least $5, regardless of age.
So where a married couple who are both younger than 65 and filing jointly wouldnt have to file unless their gross income was at least $24,800, if the same couple decides to use the married filing separately status, they would be required to file.
If youre married filing separately, you may have to include Social Security benefits as gross income in order to determine if youre required to file a return. Youll include a portion of your Social Security income if either of the following apply:
- You lived with a spouse at any time during the tax year.
- The combination of your gross income, any tax-exempt interest and half your Social Security benefits is more than $25,000.
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How Does Getting Married Affect Taxes
- Tax brackets are different for each filing status, so your income may no longer be taxed at the same rate as it was when you were single. When you are married and file a joint return, your income is combined, which may bump one or both of you into a higher tax bracket.
- Changes to your W-4 tax formIt may be wise to change your Form W-4 with your employer to reflect a change in marital status, as your form entries will be different than they were in previous years.
- Filing status optionsOnce you get married, the only tax filing statuses that can be used on your tax return are Married Filing Jointly or Married Filing Separately .
- Social SecurityYou should wait to file your return until after the name change process has been completed to avoid any complications that could arise if the name on the return does not match the Social Security number on file with the Social Security Administration.
Which Filing Status Will Save You Income Taxes
As a result of the Tax Cuts and Jobs Act, the tax rates in effect during 2018 through 2025 for married taxpayers filing separate returns are exactly half those for marrieds who file joint returns. Nevertheless, most married people save on taxes by filing jointly, particularly where one spouse earns most or all of the income. This is because filing jointly shifts the high earner’s income into a lower tax bracket. If spouses earn about the same income, there should be little or no difference in their tax rates whether they file jointly or separately. The only way to know for sure if you’ll pay more or less taxes by filing separately or jointly is to figure your taxes both ways. This isn’t hard to do if you use tax preparation software.
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Advantages Of Married Filing Separately
Many people wonder when should married couples file taxes separately? What are the benefits of married filing separately? First, this status allows you to file a separate return from your spouse if you are legally separated. You may be in a situation where you do not wish to file a joint return with your spouse and share your financial information with them. Filing separate returns can help you avoid this situation as you do not need to share anything on your own return with your spouse.
If you suspect that your spouse may be committing tax fraud or evading taxes, then it might be a good idea to file separately. Filing jointly can put you on the hook for tax liabilities that your spouse might owe. You might be wondering, Do I need to file taxes on my own? If you are married filing separate returns, then you can potentially avoid any trouble that your spouse might be getting into. This is one of the largest benefits of the married filing separately status.
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