Married with taxes: How to choose the best filing status
Getting married usually means merging your finances. But when it comes to taxes, that's not always the case. The IRS gives married couples a choice: You can file your taxes jointly, or you can choose the status "married, filing separately."
While most couples will be better off filing jointly, there are times when filing separately is preferable. Here's how to figure out your filing status.
File jointly to owe less in taxes
"In the vast majority of situations it's better to file jointly than it is to file separately. And that's because you get higher benefits associated with that," said Katie Prentke English, a co-founder of Harness Wealth, a digital wealth-management firm.
Most couples, in particular couples where the partners make very different amounts of money, will pay less in tax overall if they file jointly than they would if they paid taxes separately.
Some wealthy couples, including those making more than $600,000, do incur a marriage penalty, according to the Urban-Brookings Tax Policy Center. (The center offers a calculator so that unmarried couples can estimate how marriage would affect their taxes.)
File jointly for bigger deductions
It's often advantageous to file taxes jointly because many tax deductions and discounts are double for married couples what they are for a single person.
For instance, if you sell your primary residence, the IRS allows a single filer to avoid taxes on up to $250,000 of the profit. But a married couple can exclude twice that amount — $500,000.
Being married also increases the amount of many tax exemptions. The standard deduction, which is $12,200 for single filers, is $24,400 for a married couple — double. Marriage also doubles the amount you can contribute to an IRA, 401(k) or other tax-advantaged retirement savings plan.
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File separately to limit your own liability
There are times, though, when you'll want to separate your taxes from your spouse's. Filing separately guarantees that the IRS will only hold you responsible for your own taxes—not your spouse's.
You might consider it if your partner owes taxes for prior years, or owes child support or alimony from an earlier marriage.
"If you're not sure about your spouse's activities, if you don't have all the information, then you really need to think about whether you should file married filing separately," said Nina Olson, founder of the Taxpayer Rights Center and the former National Taxpayer Advocate for the Internal Revenue Service.
That could also be the case for married couples where one person's job puts them under extra scrutiny. Many government jobs fall into that category—including Olson's former employees at the IRS.
Some of them had self-employed spouses, Olson recalled. "And because they didn't know all the details about their self-employment, they just filed married filing separately, because they just couldn't risk the fact that there might be an error or something on their spouse's return that would have repercussions on their own employment."
File separately for high expenses
If you and your spouse have very different incomes and very different expenses, it might be worth filing separately.
For instance, say one spouse makes $40,000 and spent $5,000 on medical care. The other spouse earned $70,000 and spent just $1,000 on health care. Their combined expenses come out to $6,000 on $110,000 of combined income — a combination of medical and income numbers that's too small to deduct on their tax return. (Medical expenses need to reach 7.5% of your income before you can begin to deduct them.)
If this couple files separately, however, the first spouse will have spent 12.5% of their individual income on medical expenses, and will be able to deduct it.
The same applies if one of you is in an income-based loan repayment program. Filing separately may mean lower monthly payments, Betterment notes, because the lender won't consider both partners' income in the calculation.
Calculate it out
Bear in mind that filing separately will make you ineligible for a host of tax breaks, including the Earned Income Tax Credit, the American Opportunity Credit, the Lifetime Learning Credit and the student loan interest deduction. For that reason, if you're considering filing separately, it pays to do the math.
"That really is somewhere where I would go to a return preparer and even ask them to calculate it both ways," Olson said. While filing separately may cost you more, she noted, "you can put a dollar amount on the peace of mind that … you won't have the IRS come back against you."
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