What's The Difference Between Filing Taxes Jointly & Separately? Here's What To Know
There are plenty of tough decisions to make when it comes to tying the knot, but how to file taxes doesn't have to be one of them. Whether you and your spouse are filing for the first time or the tenth, it's worth considering how you should file to save the most money. So what's the difference between filing taxes jointly and separately, and how can it save you money on your taxes?
Married couples have the option to file their taxes together as a unit or separately as individuals. (So if you're not legally married, you can happily ignore all of this as it doesn't apply to you.)
According to tax software company TurboTax and financial institution Betterment, filing together is usually the way to go. There are a few instances in which it will be more beneficial tax-wise to file separately, but broadly speaking, the cards are stacked in favor of filing together.
The Internal Revenue Service (IRS) gives most couples significant breaks and incentives to file together, and those who file separately will miss out on most of those. Some of those credits include the Lifetime Learning credit, the Child and Dependent credit, and the Earned Income Tax credit. In addition, those who file separately can't take advantage of the IRA contribution deduction or the student loan deduction, and their overall standard deduction is half of the couples' amount, at $12,000 compared with $24,000.
There are few cases in which married couples may want to consider filing separately, one is if one spouse has a huge deduction that the other does not (for example, significant medical bills). Because the tax deduction for medical expenses is calculated as a percentage of gross income, it might be more beneficial if taken separately, as the individual income is presumably far lower than the combined income of both spouses. For example: if one person incurs $10,000 in medical expenses earning only $36,000 a year, and the other earns $90,000 with no medical expenses, they should probably file separately in this case.
Some more cases for consideration, per Betterment: One of you is following an income-driven student loan repayment plan (aka the pay-as-you-earn model). Another circumstance when you might want to file separately is if one of you wishes to not be responsible for the other's tax obligation for whatever reason; particularly if there's a possibility that one partner has filed or declared their income inaccurately for whatever reason. Next would be if you and your partner are separated but not yet divorced or living in separate households, as they may be able to claim themselves as heads of household. Finally, filing separately may be beneficial if one or both of you live in what's called a community property state, which views any assets acquired during a marriage in that state to be the equally owned by both spouses, 50/50. In other words, if one spouse buys a car while married, you each own exactly half of it, regardless of who paid for it. This last one is thanks to the way federal and state tax liabilities are arranged, so you might want to talk it over with a professional
If none of those circumstances apply to you and your spouse, then your best bet is probably to file together and enjoy the tax benefits of being a married couple. Of course, those with complicated financial situations should always consult with a professional before making such a decision. Whatever direction you choose to go in, here's hoping this tax season goes smoothly.