If you're married, you have two options on how to file your income taxes: You can file a joint return, or you and your spouse can each file an individual return. Which is better? Read on.
Married Filing Jointly
A joint return is a single return for a husband and wife that combines their incomes, exemptions, credits, and deductions. The vast majority of married couples file jointly.
You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. You can file a joint return even if one of you had no income or deductions.
Only a married couple can file a joint return. You are considered married for tax purposes for the entire year if, by December 31:
- you are married and living together as husband and wife
- you are living together in a common law marriage recognized in the state where you live or in the state where the common law marriage began
- you are married and living apart, but not legally separated under a decree of divorce or separate maintenance, or
- you are separated under an interlocutory (not final) decree of divorce. (For purposes of filing a joint return, you are not considered divorced.)
If your spouse dies and you do not remarry in the same year, you may file a joint return for that year. This is the last year for which you may file a joint return with that spouse.
Married Filing Separately
If you’re married, you always have the option to file your taxes separately. If one of you won’t agree to file a joint return, you’ll have to file separately, unless you qualify for head of household status. When you file a separate return, you report only your own income, exemptions, credits, and deductions on your individual return.
If you live in a community property state, the income you and your spouse earn is split evenly between you, as are your expenses (unless they are paid by one spouse with his or her separate non-community funds—for example, money you earned or inherited before marriage). There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
There are several disadvantages to filing separately that you need to be aware of, however, because these can easily outweigh any potential benefits:
You cannot take various tax credits, such as the Hope or Lifetime Learning education credits, earned income tax credit, and, in most cases, the credit for child and dependent care expenses.
- The amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 if you file a joint return).
- You cannot take the deduction for student loan interest, or the tuition and fees deduction.
- You cannot exclude from your income any interest income from qualified U.S. savings bonds that you used for higher education expenses.
- If you live with your spouse at any time during the tax year, you’ll have to include in income more (up to 85%) of any Social Security benefits you receive.
- If you live with your spouse at any time during the tax year, you cannot roll over amounts from a traditional IRA into a Roth IRA.
- The following credits and deductions are reduced at income levels that are half of those for a joint return: child tax credit, retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions.
- Your capital loss deduction limit is $1,500 (instead of $3,000 if you filed a joint return).
- You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse was covered by an employee retirement plan at work during the year.
- If you own and actively manage rental real estate, it will be more difficult for you to deduct any losses you incur.
- If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.
Which Filing Status Will Save You Income Taxes?
Filing separately can result in a couple paying the same as, more than, or less than they would pay filing jointly. It all depends on their incomes and deductions. Most married people save on taxes by filing jointly, particularly where one spouse earns most or all of the income. This is because filing jointly shifts the high earner's income into a lower tax bracket.
On the other hand, if both spouses have similar incomes they may pay more by filing jointly. This is because combining their incomes on a joint return can push them into a higher tax bracket than if they filed separately.
The only way to know for sure if you’ll pay less taxes filing separately or jointly is to figure your taxes both ways. This isn’t hard to do if you use tax preparation software.
Beware Tax Cheater Spouses!
There is one potential huge drawback to filing jointly: As a general rule, when a married couple files a joint return each spouse is jointly and individually liable for the entire tax owed on the return. This means that either spouse can be required to pay the tax due, plus any interest, penalties, and fines.
A spouse can claim “innocent spouse relief” and avoid personally paying the other spouse’s taxes if he or she can show the IRS that: (1) the understatement of tax was due to the other spouse, and (2) the spouse did not know, or have reason to know, that there was an understatement of tax when he or she signed the joint return. However, both propositions can be hard to prove. You’ll avoid being personally responsible for your spouse’s taxes if you file a separate return. This is something you should seriously consider if you know your spouse cheats on his or her taxes.