Thanks to TurboTaxVanessaIA and macuser_22 for their prompt replies. The tax law has been quite clear for years that couples filing separately must handle deductions the same way: both itemize or both use the standard deduction. My concern was about TurboTax's confusing message.
In the Turbotax software, on the page titled Standard Deduction or Itemized Deductions, I received this message (I've substituted a fake dollar figure for privacy's sake):
"Based on what you've told us, your federal itemized deductions of $2550 are your best option because they will save you more money than the standard deduction of zero."
This TurboTax message is confusing. As far as I know, the IRS does not use the expression of a "standard deduction of zero" if your spouse itemizes. Instead the IRS says (in Publication 17, for example) "If your spouse itemizes deductions, you can’t claim the standard deduction." In other words, in this case the standard deduction is NOT "zero" - the standard deduction simply isn't an option.
The TurboTax message would be more clear, and less confusing, if it reflected the IRS language and said something like:
"Based on what you've told us, you must take your federal itemized deductions of $2550. Although the standard deduction would be higher ($12,000), the standard deduction is not available to you because your spouse is itemizing deductions and, therefore, tax regulations require that you also itemize. You and your spouse may wish to calculate your taxes based on both taking the standard deduction, or filing jointly, to see which results in the lowest tax paid."
By the way, in my experience couples should not assume that married filing jointly is usually the best option. Whenever we've compared, we find filing separately results in less tax paid overall. Indeed, IRS Publication 17 says "you should figure your tax both ways (on a joint return and on separate returns). This way you can make sure you are using the filing status that results in the lowest combined tax."
