Filing Jointly or Separately: Which filing status should you take?

It is important to choose the best decision together with your partner and determine the importance of each other's opinions. Married life is a commitment where you need to find out how to manage every detail of your living. But when we talk about taxes, there are several factors you need to consider before making a decision as a couple.

For tax purposes, you and your spouse are considered married if you got married on the last day of the tax year regardless if you’re currently processing a divorce that has not been finalized or not. Civil unions or domestic partnerships won’t be able to qualify for a joint filing status. Same-sex couples, on the other hand, as recently implemented by the Supreme Court, must file their federal taxes jointly or as a married couple filing separately. There is no option single status option.

Now, let’s say you meet all the given requirements, how will you decide whether to file jointly or separately? This is where you break down all the disadvantages of filing separately and identify the ones that are applicable to your situation. While deciding which one to choose, keep in mind that if filing separately means both of you are required to take the standard deduction route or both itemize and not take a separate approach.

Here are some of the disadvantages when filing your tax returns separately:

• Higher Tax Rate. Couples who decide to file separately will only receive very few tax considerations. A higher tax with a higher tax rate can be expected for filing separately and the standard deduction for separate filers is significantly lower than the deduction being offered to joint filers.

• Reduced or Eliminate Potential Tax Credits. Your tax bill will no longer or may experience a reduction of credits if you decide to file separately. Some of the credits you won’t be able to take are Earned Income Tax Credit (EITC), the Elderly or Disabled Credit, or the education credits. 

• Cutting of Alternative Minimum Tax - Filing separately may cut your Alternative Minimum Tax (AMT) exemption in half, and worst, you may need to pay the AMT too. 

• Traditional IRA Contributions May No Longer Be Deductible. This also applies to some of your IRA contributions if you’ve lived with your spouse at any time during the year provided your income is over a specific amount and while both of you are covered by an employer-sponsored retirement plan. 

• Community Property. States such as California and Texas will dictate which property falls under separate or joint for the purpose of tax collection. Choosing to itemize may result in a painful pile of paperwork in order to split assets 50/50.

In some cases, filing separately offers positive results such as being able to save on your tax return. Let’s say you and your spouse both have incurred a huge amount of money for medical expenses out of your own pocket and you want to claim it. Since the IRS only allows an amount to be deducted if it exceeds 7.5% of your adjusted gross income (AGI) in 2017 and 2018, claiming most of your expenses can be quite a challenge if both of you have a high AGI.

You can only enjoy the benefits of filing separate tax returns if you are able to claim more of your available medical deductions by using the 7.5 thresholds to only one of your incomes. Taxpayers will be able to deduct the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of the couples adjusted gross income starting Jan. 1, 2019.

Still confused whether to file separately or jointly? It’s best for you and your spouse to prepare the tax return both ways. You can take a look at your calculations as many times as possible and find out if the net refund or balance due from each method offers a brighter result. If you want to avoid doing the confusing calculations yourself, you may consult a tax professional who’s experienced and is an expert in tax filing. They will explain to you which filing status to choose to help you save on your taxes.