Tax Day (April 15) is inching closer. And newly married couples face a big decision — choosing their tax filing status.
“Your taxes get more complicated as soon as you say ‘I do,'” said Mark Steber, senior vice president and chief tax information officer at Jackson Hewitt Tax Service.
Making the choice between “married filing separately” and “married filing jointly” determines whether or not you’ll share your tax liability (and potential refund) with your spouse. And there are pros and cons to both.
Here’s what to know about both filing statuses and how to determine which one is best for filing your tax return this year.
Most married couples file jointly. Should you?
For most married couples, filing joint tax returns will make the most financial sense. You’ll typically get a bigger refund or a lower tax bill when you file this way, said Andrea Harrington, a CPA at Fiondella, Milone & LaSaracina LLP. If you choose married filing jointly, you’ll have access to more credits and deductions than if you file separately.
Your filing status also impacts your income tax bracket, said Gregory King, certified public accountant at Empower. Your marginal rate is doubled if you and your spouse choose married filing jointly. This year, the standard deduction for couples married filing jointly is up to $27,700, up $1,800 from last year. That may result in a bigger refund for your household. But if you end up with an outstanding tax balance, both spouses will be responsible, said Steber.
If your spouse has a tax bill you don’t want to be held responsible for, you may qualify for relief based on the IRS’ guidelines, even though you’re choosing to file jointly.
When does it make sense to choose ‘married filing separately?’
Not many people file separately when they’re married, said Steber. But there are a few exceptions when it could be beneficial.
You may also choose married filing separately if one spouse earns less income but has higher itemized deductions. This can lower your tax liability, said Harrington. It might also make sense to file separately if one spouse expects a refund and the other expects a tax bill. And if you and your spouse make similar income but could be bumped into a higher tax bracket by filing jointly, then you might opt for this filing status.
Other reasons include income disparity, not trusting the other partner and wanting to avoid their tax consequences, Steber added. Additionally, a married couple may choose to file this way if they’re approaching divorce or separation.
If you decide ‘married filing separately’ makes the most sense for your situation, there are some rules you’ll need to follow. With this filing status, you and your spouse must choose whether to follow the standard deduction or itemize. For example, if one spouse chooses to itemize, the other must also — they cannot choose the standard deduction.
If you and your spouse file separate returns, you’re not eligible for certain credits and deductions, including:
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Credit for child and dependent care expenses — in most cases.
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The earned income credit unless you have a qualifying dependent.
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The exclusion or credit for adoption expenses in most cases.
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The credit for the elderly or disabled if you lived with your spouse during the tax year.
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The American Opportunity and Lifetime Learning credits.
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The deduction for student loan interest.
There are also other limitations, such as the capital loss deduction limit being capped at $1,500, and the child tax credit and retirement savings contributions credit dropping to half of what you could receive with a joint return. And you can’t exclude interest from savings bonds that you used for higher education costs.
How to decide on your filing status
If you’re still debating whether or not you should file jointly or separately, Steber recommends looking at your tax history together. For example, while one spouse may be used to a refund every year, the other may be okay with a tax bill and not getting any money back. If you’re filing married and jointly, that can create friction, said Steber, especially if one person’s refund is offset by the other spouse’s debt.
To determine what’s best for you and your spouse, King recommends preparing your tax return both ways (but not filing both) to determine the lowest tax liability. You may also consult with a tax professional to better understand your options.
Most importantly, remember that your filing status must remain the same when filing state and federal taxes. However, your filing status can change from year to year. If you and your spouse decide to file as married filing separately, and change your mind, you have three years from filing to amend your return to file jointly, according to the IRS.
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