If you are married, you more than likely file your income tax return as married filing jointly. However, you also have the option to file as married filing separately. In most cases married filing jointly will yield the lower tax and provides more tax credits. However, sometimes filing separately can reduce your tax bill. Let’s go over some items to help determine which filing status might suit your personal situation.
Married filing separately is most often used when each spouse wants to be responsible for only their respective taxes, even though it usually yields a higher tax bill. This usually occurs during situations of marital separation. When filing separately you need to be aware of these negative IRS parameters:
- Cannot take the American Opportunity and Lifetime Learning education credits, student loan interest deductions
- No exclusion on interest income form U.S. bond interest for education expenses
- Cannot take the Child and Dependent Care Expenses in most cases
- No exclusion or credit for adoption expenses in most cases
- No earned income tax credit
- Limits the contribution to a Roth IRA or deduction for a traditional IRA contribution
- May need to include more income with Social Security benefits
- May not be able to claim the elderly or the disabled credit
- Retirement savings contribution and child tax credits may be reduced
- Capital is limited to $1,500 instead of $3,000 if you were to file jointly
- If one spouse takes the standard deduction, the other spouse can’t itemize, you both have to itemize or take the standard deduction
- When taking the standard deduction, $12,000 is taken separately; if filing jointly the standard deduction is $24,000
Now that’s a long list, and you may be thinking you’re going to file jointly, but there are some situations where married filing separately can result in tax savings and here are a few items that might benefit you.
- If you and your spouse itemize on separate returns and have high AGI, with large out of pocket medical expenses, you might be able to deduct medical cost that exceeds5% of your AGI in 2018. In 2019, the percentage changes to 10%
- Charitable contributions
- Personal casualty losses that exceed 10% of AGI in a federally-declared disaster area
- Taking advantage of the new 20% QBI deduction for professionals
Married taxpayers automatically think filing separately will relieve them from the tax liability of their spouse. If you are worried or concerned with decreasing your tax liability by filing jointly and getting your share of the refund here are two ways that might help:
Form 8379 is used to relieve you from your spouse tax liability. This form is for the injured spouse to get back your share of the jointly filed refund when an overpayment is to be applied to a past-due amount of the other spouse.
Form 8857 is the Request for Innocent Spouse Relief when filing a joint tax return both you and your spouse are both jointly and severally liable for the tax liability, interest, and penalties that are due. If within 2 years of becoming aware that your spouse or former spouse should be held liable for the tax on a jointly filed return, you may be able to file this form to request relief if you meet all of these IRS conditions:
- Your spouse omitted income or claimed false deductions or credits
- A fraudulent scheme to defraud the IRS or another third party, creditor, ex-spouse or business partner
- Divorced, separated or no longer living together
- If taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax
Your tax advisor here at Ketel Thorstenson is available to go over your unique situation to see which filing status is best for you. Call today for assistance and to go over any questions.