When I married, I was sure that my husband and I had to share everything. And, of course, that included filing our taxes jointly. Like many couples, we made a few mistakes with our money early in the marriage, but filing jointly was probably the right decision.
“There aren’t a lot of cases where the current tax law favors you if you file separately,” said Greg Barton, a tax preparer in Logan, Utah. “Most couples are better off filing jointly. However, there are situations when filing separately actually makes sense.”
Before you pick your filing status, you need to decide whether it’s better to file taxes jointly or separately. Take a look at the following reasons to file your taxes separate from your spouse, and see if one (or more) apply to you:
1. Show a loss for business purposes
There might be other situations where filing separately can help you in a business situation. For years, my accountant showed the distribution from my business (with my husband as my partner) in a way that was favorable to our tax situation.
You might want to show a loss for business purposes, or some other reason. Filing separately can help you divvy up your income in a favorable way, although you need to be careful about how you assign income to avoid running afoul of IRS provisions.
Speak with a tax professional specializing in business for information on how to determine if that’s the right step for you — and how to proceed.
2. You’re both high-income earners
Married couples filing separately are generally disqualified from using tax breaks such as the Earned Income Credit, student loan interest deduction, and dependent care credit. However, if you’re both high-income earners, you might not be able to claim those tax benefits anyway since they come with phase-outs.
“For the most part, filing jointly benefits you the most when there’s a large disparity in income,” said Barton. “If one of you make a lot more than a spouse that works part-time or stays home, filing jointly comes with benefits.”
However, the closer you are in earnings, and the more money you both make, the fewer the benefits of filing jointly. “Depending on your situation and how you can shift available deductions around, filing separately can save you more than filing jointly,” said Barton. “At higher tax brackets turning in your tax return separate from your partner can make sense.”
3. One of you has high deductible expenses
Some itemized deductions, like job-hunting expenses and medical costs, are based on a percentage of your income.
For example, the medical deduction only applies to what you spend beyond 10 percent of your income. If you file jointly, your combined income with your spouse could prevent you from claiming a deduction for high healthcare costs, as personal finance author Beth Kobliner explains.
“If you file separately, you can deduct medical costs that exceed 10 percent of your own [adjusted gross income, or] about half the combined income, so you get to deduct more,” she writes in “Get a Financial Life: Personal Finance In Your Twenties and Thirties.”
However, you need to be careful when using this strategy. In general, if one of you itemizes, the other has to itemize as well. Still, you might be able to get around this if one of you files as Head of Household because you are separated and meet certain IRS requirements.
4. You plan to divorce early in the year
Your marital status determines your tax filing status on December 31. So, maybe you’re still married on December 31, 2017, but you know you’ll get divorced in the first couple months of 2018. Because you’re filing for 2017 taxes, you have to file as married.
“If you’re married, you’re married according to the IRS,” said Barton. “You don’t get to choose to file as single if you’re legally wed. You have to pick married filing jointly or married filing separately.”
For couples who plan to divorce, it sometimes feels better just to separate everything, including the last year’s taxes. “Even if the finances aren’t any better, some people would rather just divide everything up when they’re going through a divorce,” Barton said. “If things are civil, though, and you both come out better by filing jointly, that’s probably the better option.”
5. You’re concerned that your spouse is doing something shady
Finally, you might want to file separate returns if you are worried that your spouse is up to no good.
If you file separately, each of you will only be responsible for the accuracy of your own returns, according to Betterment. File jointly, however, and you’re both liable for the information on the return.
It’s possible to file for innocent spouse relief if you didn’t know about it, and things go sideways later, but if you suspect things aren’t exactly on the up-and-up, it can make sense to file separately to protect yourself.
Is it better to file taxes jointly or separately?
“For most couples, it’s just easier and better to file jointly,” said Barton. “But there are always exceptions.”
To figure out what’s best financially, the best option is to try figuring your taxes using different methods.
“An accountant can help you make adjustments to the scenario to see how things stand,” Barton said. “Tax preparation software can help you tweak the numbers as well. The important thing is to see what’s going to give you the best outcome.”