Posted by Raven Skylar Tax & Consulting, LLC

What You Need To Know if You Are Filing Separately, But Are Married

What You Need To Know if You Are Filing Separately, But Are Married

What is married filing separately?

Married filing separately is a tax law for couples who choose to file their taxes, income, and deductions on separate tax returns. There is a potential tax benefit when filing a separate return when a spouse has significant medical expenses or different itemized deductions or when both spouses have roughly the same income.

The married filing separately can be contrasted with married filing jointly.


Understanding how married filing separately works.

The Internal Revenue Service (IRS) offers taxpayers five different tax options when filing their annual tax returns: married filing jointly, married filing separately, head of household, qualifying widow(er) and single. Anyone claiming to be married in any of the categories, whether it is a separate return or a joint return, must be married at the end of the tax year. Therefore, a person claiming to pay file taxes in 2021 should have been married before December 31, 2020.

Utilizing the married filing separately status can be attractive and may offer financial benefits to couples. The combination of your income and filing jointly may put you in a higher tax category and increase your tax bill. A separate declaration, on the other hand, can reduce the couple's tax liability.

While there are financial benefits to filing a separate return, the couples will miss out on tax credits for joint filing.

When couples file separately, the internal Revenue Service (IRS) requires taxpayers to enter their spouse's information on personal returns. According to the Internal Revenue Service, if you and your spouse file separate returns and one of the spouses itemizes his/her deductions, the other spouse will have a standard deduction of zero. Therefore, the other spouse must also itemize his/her deductions.

Please note that due to the Tax Cuts and Jobs Act of 2017, the standard deduction increased significantly in the fiscal year 2018. The 2020 taxes filed in 2021 further increased to $12,400 for individuals and $24,800 for couples—married filing jointly. As a result of this change, one of the spouses must have miscellaneous deductions or significant medical expenses for the couple to benefit from filing separately.


Married filing jointly versus Married filing separately

Filing jointly offers the greatest tax savings, especially when the spouses have different income levels. If you use the married filing separately, you will not be able to take advantage of various potentially useful tax incentives. Some notable breaks include:

  • American Opportunity Tax Credit (AOTC): Introduced in 2009, the American Opportunity Tax Credit (AOTC) requires couples applying for a Modified Adjusted Gross Income (MAGI) of up to $160,000 to qualify for a full loan. During this time, couples earning between $160,000 and $180,000 can apply for a partial ATOC (American Opportunity Tax credit). The maximum reward is a yearly credit of $2,500 in eligible educational expenses during the first four years in which the student attends an approved post-secondary institution.

  • Child and Dependent care Credit: This is a non-refundable tax credit used by taxpayers to claim child care expenses reimbursement. The childcare may include expenses paid for caregivers, daycare, summer camps, and other caregivers for children under 13 stay or anyone looking after dependents of any age, with different capacities.

  • Lifetime Learning Credit: Parents can reduce their tax bills by claiming the education amount and receiving a 20% tax credit for the first $10,000 of eligible education expenses to save up to $2,000. Qualifying tuition includes professional, undergraduate, and graduate degree courses. In fiscal 2020, the income of couples who file jointly should not exceed $138,000 to take advantage of this loan.

As a couple filing joint income tax returns, you can deduct your contributions to a traditional individual retirement account (IRA) and any expenses related to adopting a qualifying child.


Advantages of married filing separately. 

Except for tax bills, there is a scenario where filing a separate return can be particularly smart. If you don't want to be responsible for your spouse's taxes and suspect they are hiding income or claiming false deductions or credits, filing a separate tax return is probably the best option.

Filing a joint declaration means that both spouses are responsible for the declaration's accuracy and for any tax obligations or penalties that may apply. By filing your declaration separately and not jointly, you are solely responsible for your information's accuracy and the tax obligations and penalties that may result from it.


Summary

  • Married filing separately is a tax law used by couples who choose to record their income, exemptions, and deductions in separate tax returns.

  • Filing a separate tax return can keep a couple in a lower tax category and thus control each person's tax liability.

  • If one spouse prefers to itemize his/her deductions, the other must do so.

  • Although couples may be eligible for a separate return, they may not take advantage of certain tax benefits.


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