Posted by Tiffany Gaskin

Why Happily Married Couples Should File Separately

Why Happily Married Couples Should File Separately

It might make sense for married couples to file their taxes jointly to get the benefits that come with marriage. However, this is not always the case, as separate filing might be better for couples' financial situation. There are cases when love has nothing to do with your tax. 


Cons of Separate Filing 

A lot of couples hardly file separately for understandable reasons. And indeed, filing separately as a couple might make you lose a series of tax credits and tax deductions specified for people that file jointly. Examples of such are:

  • Earned income credit

  • Child tax credit 

  • Adoption credit

  • Child and dependent care credit 

  • Every credit and deductions that have to do with education like Lifetime Learning Credit, American Opportunity Tax Credit, deductions on tuition and fees, etc. 

Also, for separate filing, it is essential for both spouses to choose the same approach to record their deductions, regardless if any of them will be better with an alternate path.

For instance, if one of the parties decides to file by the itemizing route, both spouses must consider itemizing regardless if they have a lower standard deduction value. Assuming one of the parties has an itemized deduction of $15,500 while the other has just $3,500, the second spouse must claim the $3,500 even if he has a larger standard deduction. 

This makes separate filing a terrific choice from a tax viewpoint, provided the deductions are huge, and it can take care of the lost deduction from the second spouse.

 

Why File Separately as a Couple

Here are reasons why filing separately makes sense for couples

Separation or Divorce 

This is the primary idea behind the creation of this filing status. For a series of reasons, separated or divorced couples might not want to file jointly.

Issue of Liability

If one party suspects the other spouse of tax fraud, separate filing might be the best approach. This makes it essential for the innocent spouse to file separately to avoid potential liability from the other spouse. 

Deduction Scales or Diverse Pay

When you file separately, you are doing more than protecting yourself from a negative outcome. Even couples that are married happily are better off choosing this filing route. 

It makes the most sense for childless couples where one of the spouses has a higher income, and the other has many itemized deductions. 

Let us consider a case in which one of the spouses is earning $300,000 per year while the other earns a yearly income of $50,000. The lesser earner had surgery and paid $15,000 in medical expenses that is unreimbursed. Based on the IRS rule for removing unreimbursed medical bills, only expenses above 7.5% of the AGI qualifies for a miscellaneous itemized deduction. 

  • Assuming the couples file jointly, only the expenses of $26,500 ($350,000 X 7.5%) can be deducted. As a result, the medical bill can be deducted since the total is below $26,500

  • However, if the couples file separately, the cost will be above the threshold for medical deductions, which is $3,750 using their AGI.

If the couple had no medical emergency, filing jointly is the best case. However, for the year they had the expense, the separate filing makes more sense. 

It should be noted that the source of funds is extremely important in such a situation. According to Uncle Sam, if a couple lives in a non-community property state and has separate filing of returns, each of the couple can include the medical expenses they paid. If you had a joint account (operated by you and your spouse) and you spent a medical expense using such an account, such expense is considered to be paid by both parties, except you can prove otherwise.


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Tiffany Gaskin
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