Hello,
In the 7 years my wife and I have been married, we have always filed jointly, but I've started to wonder if our situation would be better suited for filing our returns separately.
This is our situation:
I am a sole proprietor business owner with no employees, working from home. My wife is not part of my business and she works her own job with a standard W-2 and some investment accounts.
When I begin filing in TurboTax, I start with my business income and expenses. Once I am finished with my portion, I can see that I owe a relatively low amount of taxes. However, once I add my wife's W-2 and investment info, the taxes double to a very high number.
So, I performed another experiment in which I began with her W-2 and investments first, before adding my business info. It turned out that she only owed a tiny amount of taxes as well (mostly from the investment accounts).
However, when both of our incomes are combined the taxes owed are absolutely outrageous.
The only reason I can see for why this is happening is because our combined incomes are putting us into a higher tax bracket (24%), and every penny of my business income is being taxed at that rate, versus the lower rate (12%) I would be taxed if my business income was filed separately.
Not sure if it matters, but I will note that neither of us is trying to itemize deductions. In both cases, we are just taking the standard deduction, so there is nothing complicated in that part of this scenario.
Does it sound like we will benefit from filing separately?
