Most married couples never think about filing their taxes separately. They simply check off “married filing jointly” on their tax form and move on to the hard questions.
Generally speaking, a married couple should file their taxes together. Filing jointly combines a couple’s two incomes into one amount, which, after excluding nontaxable income, becomes the couple’s adjusted gross income (AGI). This larger number may push a couple’s income into the eligibility zone of certain deductions and credits.
Nevertheless, there are certain situations when you should consider opting for “married filing separately”:
Divorce or separation
At the end of the tax year, you may still be legally married but separated or in the midst of a pending divorce proceedings. If you do not want to mingle your finances with your spouse, or if you cannot deal with your spouse at all, file taxes separately.
Lack of trust in spouse’s tax ethics
Perhaps you suspect or know that your spouse has broken tax laws. In this case, file separately to minimize the legal exposure of tax fraud on your own filing. If your spouse owes back taxes or child support, the government will take that money from the jointly calculated tax refund you were expecting.
If you file taxes separately, you get your refund, and your spouse alone has to deal with the tax ramifications of unethical behavior.
Large difference in spouses’ incomes
Some itemized tax deductions depend on AGI. If one spouse makes way more money, and thus has a higher individual AGI, then sometimes a tax deduction will be larger if applied to the spouse with the lower income and smaller AGI.
Note that if one spouse chooses to file using itemized tax deductions rather than the standard deduction, the other spouse must also file using itemized tax deductions.
Here are two common scenarios where filing separately may benefit a married couple:
a. Medical expenses
Federal tax law allows a taxpayer to deduct unreimbursed medical expenses worth more than 10% of his or her taxable income. If the medical expenses apply to the spouse with a much lower income, then the threshold for deductible expenses will be lower than if the income was declared jointly.
For example, say a woman making $50,000 has incurred unreimbursed medical expenses. If she filed taxes jointly with a husband who makes $250,000, the joint income will be $300,000, and the threshold for those expenses will be $30,000. If the woman files taxes on her own, that threshold will be only $5,000. If her medical expenses are $15,000, she can deduct $10,000 if she files alone, but she cannot deduct any medical expenses if she files with her husband.
b. Student loans
If you and your spouse have income-based student loan payments and you file separately, the payment amounts will be based on each spouse’s income rather than the couple’s combined income. Be sure, however, that debt forgiveness programs don’t affect your future tax debt, since under some programs, debt forgiveness is taxable.
The bottom line
To help you decide whether to file jointly or separately, fill out your tax forms twice: once separately and once jointly. This way, you will quickly find out which filing method leads to the lowest tax bill or — joy! — the highest tax refund.