To take advantage of the tax benefits that come with being married, every couple should file jointly, right? In terms of tax strategies, many couples don't realize that filing separately may be the better choice. There are times when love has no place on your tax return.
As with many decisions made in marriage, the choices couples make are related to their unique circumstances. This is also true of the filing status you choose when you get married. Once married, your filing status changes from single to married filing jointly or married filing separately, but many couples wonder, “Once married, what is my filing status?” and “Should I File Married Filing Jointly or Separately”?
Listed below are some reasons why married couples file jointly or separately. The pros and cons of filing a joint or separate tax return will be discussed.
Married Filing Jointly
If a husband and wife file a joint return, their income, exemptions, credits, and deductions are combined. Over 95% of married couples file jointly.
If both you and your spouse agree to file a joint tax return, you can choose married filing jointly as your filing status. Even if one of you had no income or deductions, you can file a joint return.
Only married couples can file joint returns. For tax purposes, you are considered married for the entire year if, by December 31:
- you live together and are married
- you live together in a common-law marriage recognized by the state where you live or where your common law marriage started
- you and your spouse live apart but are not legally separated under a divorce decree
- you are separated under an interlocutory (not final) decree of divorce. (For purposes of filing a joint return, you are not considered divorced.)
You can still file a joint return if your spouse dies and you don't remarry in the same year. This is the last year that you can file a joint return with that spouse.
Advantages of Filing Married Filing Jointly
Couples filing joint tax returns have several benefits, and the IRS encourages them to do so.
As a couple, you receive a double standard deduction and a double capital loss deduction.
By taking the standard deduction, your income is reduced by the amount of the deduction. As a single filer or married couple filing separately, the standard deduction for 2020 is $12,400; as a couple, it is $24,800. As long as you both earn enough to claim the standard deduction on your own, filing jointly won't make a difference.
In the event that one of you leaves your job (voluntarily or involuntarily), you can still reduce the remaining income by $24,800 as a couple, which means you retain that benefit.
Couples filing jointly may also qualify for higher income thresholds for certain credits, and they may also qualify for additional credits or higher deductions.
Should I file as married filing jointly?
Generally, couples who file jointly receive more tax breaks and have more money in their pockets at tax time than those who file separately.
The IRS offers the largest standard deductions every year to couples filing jointly. The standard deduction allows couples to immediately deduct a large portion of their taxable income. In 2021, the standard deduction for a married couple filing jointly is $25,100, compared with $12,550 for married couples filing separately or for single individuals.
In order to qualify for certain tax credits, couples must file a joint tax return instead of filing married filing separately. The following are some popular tax credits that married couples filing jointly may qualify for:
- Child and Dependent Care Tax Credit up to $8,000 with 2 or more kids
- Earned Income Tax Credit up to $6,728 for a family with 3 or more kids
- American Opportunity Tax Credit up to $2,500 per person
- Lifetime Learning Tax Credit up to $2,000 per tax return
Tax credits and deductions are often available to married couples who file jointly, regardless of their income.
Married Filing Separately
Married couples always have the option of filing their taxes separately. Unless you qualify for head of household status, you'll have to file separately if one of you won't agree to file a joint return. In an individual return, you report only your own income, exemptions, credits, and deductions.
If you live in a community property state, the income you earn and the expenses you incur are evenly divided (unless they are paid out of separate, non-community funds, such as money you earned or inherited before you married). Nine states have community property: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Disadvantages of Filing Married Filing Separately
Separate tax returns provide few tax incentives for couples. When you file separate tax returns, you will be taxed at a higher rate. The standard deduction available to married filers filing separately in 2021 is substantially less than that available to married filers filing jointly.
Separate tax returns also have a number of disadvantages, such as:
- No deduction for student loan interest.
- A smaller deduction for IRA contributions.
- Not eligible for several tax credits and benefits available to married couples filing jointly.
When might it be a good idea to file separately?
While married couples who file jointly generally receive more tax breaks, sometimes it might be a good idea to consider filing a separate return.
Consider the following scenarios.
Divorce or Separation
Originally, the "filing separately" status was based on legal separations. Divorced or separated couples may not want to file their taxes jointly for a variety of reasons.
A separate filing may also be appropriate if one spouse suspects the other of tax evasion. An innocent spouse in such a case should file separately in order to avoid potential tax liabilities due to the behavior of the other spouse. A spouse may also elect this status if the other refuses to file a tax return at all.
Diverse Pay or Deduction Scales
Filing separately isn't just about protecting yourself from a negative outcome. Even the happiest couples can benefit from this strategy nowadays.
Usually, this happens with childless couples, where one spouse has a higher income and the other spouse has substantial itemized deductions.
Will marriage bring a tax benefit or tax penalty?
There are married couples who pay less taxes, while there are married couples who pay more taxes. The IRS considers you married for the entire year regardless of whether you were married on January 1st, December 31st, or somewhere in between.
Couples with high incomes may pay more than two comparable singles. If only one spouse works (or the second spouse has a much lower income), the couple could end up saving a lot of money on taxes.
You may want to consider getting legally married in December the prior year if your wedding is scheduled for early in the year, but only if it will lower your taxes. In the same way, if your wedding is later in the year, you may wish to delay becoming legally married until the following year to avoid the marriage penalty.
The marriage penalty affects more than just income tax brackets. There is also the medical deduction. Additionally, most limits for real estate are the same for married couples and single people (e.g. the mortgage deduction and home equity lines of credit). State and local taxes are also capped at $10,000 in high-tax states, whether you are married or single.
If a couple were single, each of them could deduct $10,000 in state and local taxes, double what they could deduct if they were married.
The news is not entirely negative for married couples. Tax bonuses are available as well.
Helpful Resource: Tax Benefits of Marriage
Which filing status will save you income taxes?
The best way to determine if you should file jointly with your spouse or separately is to prepare both tax returns. Look at each method's net refund or balance due, and then double-check your calculations. When you hire a professional accountant to prepare your tax return, he or she will do the math for you, and recommend the filing status that will save you the most money.
You can file your federal income tax return jointly or separately as a married couple. The IRS encourages most couples to file joint tax returns by extending several tax breaks to those who do so. Married couples should, for the most part, file jointly, but there may be a few cases in which they should file separate returns.
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