Filing jointly or separately

The IRS deems taxpayers wedded if they are legitimately married under state law, reside together in a state-recognized common-law marriage, or are separated but do not have a separation maintenance or final divorce decision at the conclusion of the tax year.

Of the 150.3 million tax returns filed in 2016, the most recent year for which the IRS has available figures (at the time of writing), 3.07 million were for twosomes who filed separately.

• These partners filed separate tax forms to show their own income and expenses.
• They had to agree on whether to itemize costs or take the standard deduction.
• If their salaries were comparable, filing separately and taking use of their varied deductions or medical expenditures would most certainly help them save money on taxes.

Filing separately with similar incomes

When both couples work and earn roughly the same amount, filing separately may result in a lower tax bill for the pair.

• When they examine the tax due amounts for combined and separate filing statuses, they may realize that combining their earnings places them in a higher tax category.
• Their savings are determined by a number of other circumstances, such as their financial condition and whether or not they have children.
• The “married filing separately” status lowers the deduction for IRA contributions and eliminates some tax credits, among other tax benefits.

Using miscellaneous deductions by filing separately (for tax years prior to 2018)

Miscellaneous deductions can reduce taxable income, but they must total more than 2% of adjusted gross income (AGI) to be reported on Schedule A.

Spouses with union dues, job-search expenditures, tax preparation fees, and unreimbursed business expenses may find that their miscellaneous deductions are ineligible when their combined income rises.

A spouse who often travels for work may incur significant airline expenses for luggage and itinerary changes, making the miscellaneous deduction worthwhile.

Starting in 2018, these incidental costs are no longer deductible.

Filing separately to save with unforeseen expenses

Adjusted gross income also impacts whether a couple can claim unreimbursed health-care expenditures and casualty losses on Schedule A to reduce taxes.

• Out-of-pocket medical costs are not deductible until they exceed 7.5% of your adjusted gross income.
• Casualty losses must be greater than 10% of AGI and occur in a federally declared disaster region.

When the pair files separate returns, the spouse who suffered a loss or incurred a significant medical expense calculates deductibility against his or her lower AGI. When one spouse may minimize their taxable income in this way, married filing separately may reduce a couple’s overall tax burden.

Filing separately to guard the future

When you don’t want to be held accountable for your partner’s tax debt, selecting the married-filing-separately status provides financial protection: the IRS will not apply your return to your spouse’s sum owed. Separate returns make sense because they prevent the IRS from taking a spouse’s tax refund if the other falls behind on child support payments. Couples in the process of separating may avoid filing joint returns in order to prevent IRS issues after the divorce, but a spouse who concerns her partner’s tax ethics may want to live a separate tax life. Couples in community-property states should consider state law while selecting how to file.

At PSA CPA we are happy to do you and your spouse’s taxes, start to finish. Simply give us a call at 301-879-0600!