Every season, married couples can choose to submit their taxes jointly or individually. While filing jointly usually pays off, separating returns may be preferable in some cases, according to financial experts.
Married couples filing separately must file two separate forms, each stating their own income, deductions, and credits. And the tax system often penalizes those who file separately.
“The IRS appears to believe that if someone files separately, they’re doing something shady,” explained certified financial planner John Loyd, owner of The Wealth Planner in Fort Worth, Texas, noting how it may draw a little extra attention.
Still, for certain couples, the tax advantages may exceed the disadvantages. Here’s all you need to know about filing separately.
Marginal tax brackets for tax year 2021, married filing jointly
|Taxable income||Taxes owed|
|$0 to $19,900||10% of taxable income|
|$19,901 to $81,050||$1,990 plus 12% of amount over $19,900|
|$81,051 to $172,750||$9,328 plus 22% of amount over $81,050|
|$172,751 to $329,850||$29,502 plus 24% of amount over $172,750|
|$329,851 to $418,850||$67,206 plus 32% of amount over $329,850|
|$418,851 to $628,300||$95,686 plus 35% of amount over $418,850|
|$628,301 or more||$168,993.50 plus 37% of amount over $628,300|
Marginal tax brackets for tax year 2021, single individuals
|Taxable income||Taxes owed|
|$0 to $9,950||10% of taxable income|
|$9,951 to $40,525||$995 plus 12% of amount over $9,950|
|$40,526 to $86,375||$4,664 plus 22% of amount over $40,525|
|$86,376 to $164,925||$14,751 plus 24% of amount over $86,375|
|$164,926 to $209,425||$33,603 plus 32% of amount over $164,925|
|$209,426 to $523,600||$47,843 plus 35% of amount over $209,425|
|$523,601 or more||$157,804.25 plus 37% of amount over $523,600|
Student loan repayment
If you participate in an income-based student loan repayment plan, it may make sense to file taxes separately because earnings often influence what you owe each month.
According to Loyd, filing jointly may result in larger payments, but you must consider the other trade-offs before filing separately to minimize your expenditures.
Medical expense deductions
Separate filings may also be considered if you have large medical costs, according to Marianela Collado, a CFP and CPA with Tobias Financial Advisors in Plantation, Florida.
She explained that if you itemize your deductions, you can claim a tax benefit for unreimbursed medical expenditures that exceed 7.5% of your adjusted gross income.
For example, if you have an adjusted gross income of $100,000, you can deduct qualified expenditures in excess of $7,500. The smaller your income, the easier it is to cross that line.
Spouses filing separately, on the other hand, must either itemize or take the standard deduction, according to Collado. They are unable to employ other tactics.
Financial infidelity is another prevalent cause for filing taxes separately.
For example, if you’ve separated from your spouse and can’t rely on them to file taxes correctly or on time, you may detach returns, according to Monica Dwyer, a CFP, vice president and wealth adviser at Harvest Financial Advisors in West Chester, Ohio.
“You’re putting yourself at risk for that information,” she explained, adding how signing a joint return may expose you to accountability for errors or tax fraud.
Furthermore, there is no statute of limitations for the IRS to investigate accusations of fraud, which increases the danger for divorcing couples.
Trade-offs of filing separately
“If couples plan on filing separately, they must consider what they are forfeiting,” said John Gehri, a CFP and vice president of Harvest Financial Advisors in West Chester, Ohio. Most separate filers, for example, are unable to make Roth individual retirement account contributions because the IRS has reduced the modified adjusted gross income maximum to $10,000. Other write-offs for separate filers, such as the student loan interest deduction, education tax credits, and others, are either blocked or limited, according to Gehri. Whether you’re working with a tax expert or filing on your own, he recommends evaluating the figures both ways before deciding on a status.
“As a general rule, I try to avoid filing separately,” The Wealth Planner’s Loyd noted. “You don’t want your tax return to be in the spotlight.”