When you're married, you have two options for filing your taxes: married filing jointly or separately. Most people find that filing jointly is the best way to go, but there are instances when filing separately is more prudent.
Reasons to File Jointly
1. More deductions and credits are available. Filing jointly gives you access to more credits, including the child and dependent care, earned income, and the elderly and disabled credits. You can also take advantage of deductions for college tuition and student loan interest. Generally, these are not available if you file separately. Consult the IRS website for a full list of available deductions and credits for married couples filing jointly.
2. You can deduct IRA contributions or contribute to a Roth. As long as you meet income requirements for married filing jointly status, you can deduct traditional IRA contributions or contribute to a Roth. On the other hand, if you file separately, you may lose the ability to deduct or contribute because income requirements are much more strict.
3. You may pay less in taxes. The taxes you'll pay when filing jointly are usually lower than if you combine the taxes due on two separate returns.
4. It's easier if you itemize. If you itemize, filing jointly is often your best option. If you file separately and one spouse itemizes, then the other needs to also, even if the itemized deductions are less than the standard deduction.
5. It's more convenient. It's faster to simply file one, unified return. Unless other reasons are very compelling, you will likely want to file jointly.
Reasons to File Separately
1. You can deduct excessive unreimbursed medical expenses. Because you can only deduct medical expenses in excess of 7.5 percent of your adjusted gross income, filing separately can allow one spouse with heavy medical expenses to deduct more of them against their income only.
2. You can protect yourself from an unethical spouse. If your significant other tends to be more "creative," so to speak, with their return and deductions, you might want to file separately to protect your own interests in the event of a tax audit.
3. Protect your refund against seizure for child support. If your spouse owes child support, filing separately will protect your tax return money from government seizure.
4. Protect your refund against seizure for back taxes. If your spouse owes the IRS for back taxes, filing separately will protect your tax refund money from being applied to this debt.
5. If you are legally separated. If this is the case, you are required to file separately by law.
6. Avoid complications if you are getting divorced. If you are in the process or know you will be getting a divorce soon, filing separately is a good idea to avoid any tax complications after it's finalized.
Final thoughts: If you think that filing separately could benefit your situation, keep in mind this can be more complex if you live in a community property state, such as Arizona, California, or Texas. In this case, you'll need to split everything down the middle, including property taxes and your mortgage. This may not be worth the effort, but if you're filing your taxes with tax preparation software, you can easily run numbers both ways to see which is best.
Which status do you use to file your taxes with your spouse?
David Bakke is a financial columnist for Money Crashers Personal Finance, where he writes about smart shopping, taxes, budgeting, retirement, and more.