What Are the Pros and Cons for Filing Taxes Separately if Married?

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The tax situation for each couple is different, but in general couples benefit more from filing jointly than filing separate tax returns. Still, filing separately has its advantages for couples in certain circumstances. You can only file your taxes jointly if both you and your spouse agree to file jointly, otherwise you must file separate tax returns.

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Itemizations and Medical Expenses

A variety of itemized deductions on your taxes must total 2 percent or more of your adjusted gross income for you or your spouse to claim them as exempt. Couples filing separately also cannot take an earned income credit on your taxes and education credits, and you receive a lesser child tax credit and retirement savings credit. When you or your spouse has incurred a certain amount of medical bills during the previous year and also has not made as much as the other, filing separately will result in you owning less in taxes. You can deduct medical bills from your taxes if the bills total 7.5 percent or more of your adjusted gross income.

Income Differences

Filing your taxes jointly helps to average out your taxable income. The averaging of your two incomes may lower the higher-earning spouse's income out of a higher tax bracket, reducing the tax rate and

leading to a reduced amount of taxes you owe as a couple. The averaging effect is more pronounced as the difference in income between spouses is greater.

Joint Liability

You increase your personal exposure risk by filing jointly with your spouse, since both of you are liable for paying the total amount of taxes from your joint filing. Essentially, the decision may come down to how much you trust your spouse. Your spouse could disappear with all of your liquid assets overnight, sticking you with the total tax liability. The IRS will not excuse a portion or all of the tax liability if your spouse slips out of the country, leaving you to cover the taxes on both of your incomes.

Running Both Scenarios

Before you ultimately decide whether you want to file your taxes jointly or separately, run both scenarios to see the final outcome for your situation. Each couple's financials are different, and with the many factors affecting tax rates, you ultimately will not know the best method for your situation until you fill out, but not file, the paperwork jointly and separately. When you run both scenarios, do not forget to do both federal and state taxes, since state taxes may make enough of a difference to sway your decision one way or another.

Source: ehow.com

Category: Bank

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