Tax season is upon us, and one of the biggest decisions you’ll make when filing your taxes as a married couple is whether to file jointly or separately. It’s an important decision that can affect how much money you owe or get back in a refund. Here are some things to consider when deciding between filing jointly or separately.
What does ‘filing jointly’ mean?
Filing jointly means combining both spouses’ incomes, deductions, and credits on one tax return. This option is generally preferred by couples who have similar income levels because it often results in a lower overall tax bill due to the progressive tax system.
What does ‘filing separately’ mean?
Filing separately means that each spouse files their own individual tax return, reporting only their own income, deductions, and credits. This option may be required if one spouse doesn’t want to be responsible for the other’s taxes or if there are concerns about questionable reporting practices.
Pros and Cons of Filing Jointly
- Lower overall tax bill due to progressive tax system
- Higher standard deduction (for 2021: $25,100 married filing joint; $12,550 married filing separate)
- Larger healthcare premium subsidy eligible
- Both spouses are equally liable for any errors made on the joint return
- Complicated divorce/separation issues may arise related to refunds/payments owed pre/post separation.
- If either spouse owes previous federal debts – like student loan debt or past-due child support – your refund could get garnished
Pros and Cons of Filing Separately
-Separation of financial responsibilities & protections in case something goes wrong.
-Less effect on benefit amounts such as Medicaid eligibility for long term care etc.
-Taxes will almost always be higher than combined since it has a relatively restricted tax table with default higher rates.
-No earned income or child/dependent care credits
– Limitations on contributing to a Roth IRA in years when spouses are legally separated
Ultimately, deciding between filing jointly or separately depends on your unique situation. If you and your spouse have similar incomes, filing jointly may be the best choice. However, if one of you has outstanding debts, questionable reporting practices or there is a possibility of divorce/separation in the near future then it may make more sense to file separately.
Remember – every couple’s financial circumstances will be different and ultimately what works for one person may not work for another. Be sure to consult with a tax professional before making any final decisions.
Q: Will filing tax returns separately from my spouse lower our combined tax bill?
A: It can depend on your specific circumstances, but it is possible that filing separately could result in a lower overall tax bill for you and your spouse. This may be the case if one spouse has significantly more income or if one spouse has income-related expenses that can be deducted. However, it’s important to note that married couples who file taxes jointly typically benefit from certain deductions and credits that are not available to those who file taxes separately.
Q: Are there any downsides to filing separate tax returns?
A: Yes, there can be several downsides associated with filing separate tax returns. Some of these include missing out on certain deductions and credits, such as the Earned Income Tax Credit (EITC), American Opportunity Credit (AOC), Lifetime Learning Credit (LLC), and certain IRA contributions. Additionally, some states require taxpayers to file joint returns even if they filed their federal return separately.
Q: Do we both have to choose the same method of filing our taxes?
A: No, spouses do not necessarily need to choose the same method of filing their taxes; each person can decide whether they want to file jointly or separately based on their individual financial situation. However, if one partner chooses to file as married-filing-separately status then both partners must use this method instead of married-filing-jointly status which may provide more benefits like higher standard deduction amount etc., so it’s important for both partners to consult a qualified tax professional before making a decision about how best to proceed with their particular situation