Posted On March 17, 2020
Tax Day is coming up soon – have you filed your taxes yet? Over 95% of married couples file their taxes jointly, however, there are some cases where it may make sense to file separately. The Internal Revenue Service (IRS) considers you married if you are legally married, live together in a state-recognized common-law marriage, or are separated without separation maintenance or a final divorce decree as of the end of the tax year.
These are some of the scenarios where married couples may benefit from filing separately.
Filing Jointly Increases Income
If filing jointly and combining incomes pushes the couple into a higher tax bracket, they may choose to file separately instead. How much they save depends on other deductions and investments. For example, married filing separately will cut deductions for IRA contributions and eliminate the child tax credit. If you’re contributing to an IRA or have children in daycare or after-school care, discuss this with your tax preparer.
Filing Separately Saves on Medical or Casualty Loss
When out-of-pocket medical expenses exceed 10% of annual gross adjusted income they can qualify for a deduction. Additionally, when casualty losses exceed 10% of adjusted gross income they will qualify. If one spouse incurs substantially higher medical costs or casualty losses compared to their adjusted gross income, it can make sense to file separately.
Filing Separately in the Case of Divorce
When you are legally married and you file jointly any taxes owed will be a joint responsibility and any tax refund is disbursed to both parties. If you are in the process of divorcing, you may choose to file separately to protect yourself from owing your spouse’s taxes.
Working with a professional tax preparer can help you make the best tax filing decisions for you and your family. If you have any questions about whether to file with your spouse or file separately, contact a tax preparer.
Sources: The Street