Looking at Statuses 1 and 2 in the Tax Return, simply stated,
“Married filing jointly” involves a single return for both spouses whereas “married filing separately” means each spouse has to file their own individual return.
When is it better to file a separate individual return even when married?
Let’s take a look at the possible reasons to file separately:
- When one of the spouses has a lower income and is eligible for substantial itemized deductions, it may be beneficial to file tax returns separately.
- Another case when it is better to file separately is when there is a pending divorce or separation.
- Big gap in pay or deduction scales is also a good reason to file returns separately.
- Liability issues: if one spouse suspects the other of tax evasion it is best if that spouse is to file a return separately in order to avoid tax liabilities.
Even though, filing separately may be beneficial for you, we want to make sure you know both sides of the coin, so you know what you are doing!
Disadvantages of filing separately:
One of the biggest disadvantages of separate filing is the loss of major tax credits and deductions. While they are available to those filing jointly, unfortunately, separate filers lose the option for some tax credits and deductions.
In our following posts we will go through each and every tax credit in depth but for now we would like to give you an example of what you might lose if you file separately:
- Earned income credit
- Adoption credit
- Child and dependent care credit
- Child Tax credit
- Traditional IRA
- Deductions related to education known as American opportunity, student loan interest, tuition, fees, and lifetime learning credits.
Another disadvantage of filing separately is reporting deductions. When filing separately, both spouses are forced to choose the same deduction recording method. In this case, filing separately is only beneficial if the deduction of one spouse can make up for the lost deduction amount of the other spouse.
