Whether it’s something as simple as picking a restaurant or as complex as deciding whether to have children, marriage requires lots of mutual decision-making.
Couples who tie the knot will have another choice to add to that growing list next tax season, as they can either file joint or separate returns. This choice can affect the amount of taxes they owe or the size of their refunds.
Here’s a closer look at these two options and how to determine which filing status is best for you and your spouse.
Married Filing Jointly
If married couples file jointly, they’ll only have to fill out and submit a single return in which their incomes and exemptions, including tax credits and deductions, are combined.
Joint filers might qualify for several potentially significant tax deductions and credits, such as the earned income tax credit, the child tax credit and the child and dependent care tax credits.
Retirement fund contribution deductibility phase out limits are higher for couples filing jointly, as is their standard deduction.
Most married couples tend to file jointly, especially if one partner earns significantly more than the other. The person with the more modest income may pull the higher earner down into a lower tax bracket, resulting in a lower overall tax bill than if they’d filed separately.
Just keep in mind that filing jointly makes each person equally liable for the accuracy of the return. To avoid being hit with penalties, make sure to check your forms at least twice for mistakes and oversights.
Married Filing Separately
In some situations, it is possible that a married couple who both earn income will pay more in taxes with a married filing jointly return versus two married filing separately returns. This is often called the ‘Marriage Penalty’.
Let’s say your spouse paid a costly out-of-pocket medical expense in the past year. Naturally, your partner would want to claim that expense on his or her tax return. If you’re filing jointly, the IRS would only allow your spouse to deduct the amount of those costs that surpasses 10% of your joint adjusted gross income, or AGI. Instead, if each spouse prepared their own married filing separately return, the allowable deduction would increase on one return and their combined tax liability would be lower.
The Bottom Line
Since filing separately can hamper a couple’s ability to take advantage of deductions and tax credits, most married people end up completing joint returns. That said, if you know you won’t qualify for many deductions or credits in the first place, it might be worth preparing returns using both statuses and file using the option that produces the lower tax liability.
Just as crowdsourced review websites can help you pick a decent restaurant, selecting a filing status isn’t a decision you and your spouse need to make alone. Qualified tax professionals and tax-preparation software can help steer you in the right direction.
Content Provided Courtesy of NerdWallet.
Please consult a qualified tax professional for tax advice on your specific situation.
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