Filing Separatly vs. Jointly: One income much lower, next year will be independent contractor, and student loan Income Based repayment plans all factors! Help me decide!

[suzanne-mackenzi]

My husband and I got married this year. We are trying to decide if we should file jointly or not. Here are the things we are considering :

1. One of our incomes is significantly lower than the other -- putting one in the 15% bracket and the other in the 25%. Doesn't this mean we should file separately?

2. One of our student loan repayment plans is on income based, the other is a private loan. By filing together won't the income based monthly bill go up?

3. This past year we both worked from home, one full time and one part time - I don't know how to deal with deductions this way. 

4. Next year one of our jobs is changing to an Independent Contractor status, making our tax situation much different as well - including our tax payment schedule.

5. Last year one of us received a large refund and the other owed a considerable amount. Would filing separately help this situation?

[Opus 17]

We really can't tell you, other than that MFJ is almost always better even if your incomes are different.  Student loan interest is not deductible when filing MFS.  Last year owing tax vs refund is caused by one person not having enough money taken out of their pay.  Unless that person adjusted their W-4 to have more tax withheld, they will still owe, but that tax will be owed either way.

Filing separately may perserve your lower loan payments under IBR.  However, the tax loss may wipe out some of the benefit.  Also, unless you are in a qualified public service job that qualifies for loan forgiveness after 10 years, extending the IBR just means a longer loan term and higher total lifetime amount paid.  If you do qualify for forgiveness after 10 years, you might want to file separately, but realize that you are locking yourself into a job or career for 10 years even if you decide you don't like it, you have to follow every complicated rule to make sure you qualify, and if you later find out you don't qualify or change jobs and lose the qualification, you can't get your tax losses back.

To examine your tax position, you should buy turbotax deluxe on a CD or download and install on your own computer, instead of using turbotax online. You can create multiple test returns with different facts and scenarios, they will be separate documents on your hard drive.  You would have to check information at the dept of education to see how MFJ and MFS will affect your payments. (While MFJ will show higher income, it will also put two loans together under one family.)

[VolvoGirl]

Unless you have a specific reason to file separate returns,
It is usually better to file Joint. Joint has the lowest tax rates and the highest Standard Deduction.   And if you are in a Community Property state MFS gets tricky to figure out.  Here's some things to consider about filing separately……

In the first place you each have to file a separate return, so that's two returns.  And if you are using the Online version that means using 2 accounts and paying the fees twice.  

Many people think they come out better when filing Married Filing Separate but they are probably doing it wrong.  If one person itemizes deductions then the other one must itemize too, even if it's less than the standard deduction, even if it is ZERO!  

And there are several credits you can't take when filing separately, like the
EITC Earned Income Tax Credit
Child Care Credit
Educational Deductions and Credits

And contributions to IRA and ROTH IRA are limited when you file MFS.

Did you both use Turbo Tax last year?
You can not transfer from or combine 2 returns or accounts.  Just pick the return for the spouse that has the most complicated return to enter or has any depreciation or business or  more investments.  Or use the account for whoever you want to be listed first going forward (by the way you can not change the order of the names).   Then add the other spouse's name, ssn and info to it.

You should usually file a Joint return which is only 1 return combined for the both of you.  Make sure to stick with this one account for the future.  Just ignore the other spouse's account.

And info on Getting Married…..
<a rel="nofollow" target="_blank" href="http://turbotax.intuit.com/tax-tools/tax-tips/Family/Getting-Married/INF12006.html">http://turbotax....>

Is it better to file Joint or Separately?
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