Even as tax season winds down, it’s still important that you consider tax strategy as part of your financial picture. Many couples file jointly, and while it could help save on your taxes, it isn’t always the best option in every case! It might seem like a no-brainer to choose the married filing jointly status, given the tax brackets and standard deductions, but filing jointly comes with some drawbacks. Both spouses must report all their income, deductions, and credits on the same return when they file jointly. Both accept full responsibility for the accuracy of that information. The IRS refers to this as being “jointly and severally liable.” Here are some important factors to consider if you are filing taxes as a married couple.
- Determine if you can file jointly. If you have been recently married and you’d like to file jointly, you should consider the date of your legal marriage as recognized by the state. Persons filing jointly must have been married by December 31st, 2022, to do so. If you were married on January 1st, 2023, or later, you are not eligible to file jointly for 2022 (even though your taxes are due in 2023). [1]
- Consider your deductions and credits. Married couples filing separately aren’t able claim many things that will reduce their bill or increase their refunds. In contrast, the standard deduction for the married filing jointly status is the largest deduction available, and often a lower earning spouse can pull the higher earning spouse into a lower tax bracket. If you file separately, you also cannot claim student loan interest deductions, tuition and fees deductions, education credits, or earned income credits. [2]
- Consider your itemization options. If you are married and filing separately and one partner is going to itemize their tax return, both partners must itemize.[3] Usually, it is only useful to itemize if you can itemize more than the standard deduction, so unless both partners will benefit from separate itemization, filing separately is likely the wrong move. However, if one partner has very significant deductions, it may be advantageous. An example of this would be if one partner has a very large medical bill that is far over the standard deduction, and they are in a lower tax bracket, it may be better to file separately. [4]
- Determine the best income option for you. If one spouse has a substantially lower income than the other, filing a joint return could result in the lower income pulling the higher one down into a lower bracket, reducing your overall taxes. For instance, if one spouse makes $8,000 a year and the other makes $55,000 a year and they file jointly, they will only have to pay 12% of their income in taxes. If they had filed separately, the spouse making $55,000 would have had to pay 22%.[5] Married tax brackets are usually determined by values that are approximately double the single tax bracket values. A single person making $44,726 a year is taxed at the same rate as a married couple making $89,541. [6] But most households don’t have exact equivalent incomes from both spouses. So, if there is an income inequality, it can often reduce the overall tax bracket if you file jointly.
- Consider Filing separately if any of these Apply to your situation:
- When you and your spouse combine the taxes due on your separate tax returns, the total is the same as, or very close to, the tax that would be due on a joint return. In this case, filing separately achieves the goal of maintaining distinct responsibility for the accuracy of the returns, but without any additional liability.
- One spouse is reluctant to consent to file a joint tax return.
- One spouse suspects that the other is excluding income or overstating deductions. The innocent spouse doesn’t want to be held personally liable for the other spouse’s misrepresentations.
- The spouses live apart or are separated but not yet divorced. They want to keep their finances as separate as possible.
- The spouses live apart, and at least one of them would qualify for the beneficial head of household filing status if they didn’t file together.
- Something to Ponder: Eligible couples filing a joint return can make contributions to two separate IRA accounts – one for each spouse – and receive substantial tax benefits, even if one spouse is not working. Additionally, the point at which the IRA benefits are phased out based on income are dramatically higher for married couples than they are for single people.
- Filing Jointly may take less time and lower the expense: If the spouses only file only one tax return there’s a greater chance it will take less time to assemble the paperwork—at least for the one not doing the taxes—and usually costs less to prepare than two separate returns, thereby saving the couple money,
In Conclusion, Experts recommend preparing your taxes both ways to determine which option makes the most financial sense for you. If you’re uncertain what option is best for your situation, consider consulting with a professional for direction. Tax Law is complicated, but there are professionals who can provide you with guidance, and help you to understand your choices. If you are looking for financial direction, or have questions about your financial plan, reach out to us for a complimentary review of your portfolio.
