Filing Jointly Vs. Filing Separately
Many taxpayers over the years have asked me the pros and cons of filing married filing jointly versus married filing separately. Please see some of the pros and cons of each described below.
· Filing separately may be beneficial if you need to separate your tax liability from your spouse’s, or if one spouse has a significant itemized deduction.
· If you and/or your spouse is part of an income-based repayment plan for outstanding student loans, filing separately may mean lower monthly loan payments.
· It may be preferable to file separately when you need to separate your tax liability from your spouse’s. Signing a joint tax return makes you both responsible for the accuracy and completeness of the return and obligates you for any current or future tax liability. If you file separately, you will only be responsible for the accuracy and payment of taxes for your own return.
· If spouses live apart or are separated but not yet divorced and they wish to keep their finances as separate as possible, filing separately may be appropriate. In addition, if spouses do not live together and one spouse would qualify for head of household it may be more beneficial to file separate returns.
What do you lose by filing separately?
Ultimately, filing a joint return is typically more beneficial, particularly in light of the recent changes to the tax code. When you choose not to file jointly, you limit or altogether forgo several tax breaks and deductions including:
The child and dependent care tax creditThe adoption creditThe Earned Income CreditTax-free exclusion of U.S. bond interestTax-free exclusion of Social Security benefitsThe credit for the elderly and disabledThe deduction for college tuition expensesThe student loan interest deductionThe American Opportunity Credit and Lifetime Learning Credit for higher education expensesThe deduction of net capital lossesTraditional IRA deductionsRoth IRA contributions
If you would like to book your personalized strategy session for taxes, visit www.tebcpa.com