Yes, you could file as married separately.
However, when you choose not to file jointly, you limit or altogether forgo several tax breaks and deductions including:
- The child and dependent care tax credit
- The adoption credit
- The Earned Income Credit
- Tax-free exclusion of U.S. bond interest
- Tax-free exclusion of Social Security benefits
- The credit for the elderly and disabled
- The deduction for college tuition expenses
- The student loan interest deduction
- The American Opportunity Credit and Lifetime Learning Credit for higher education expenses
- The deduction of net capital losses
- Traditional IRA deductions
- Roth IRA contributions
Your other filing option is to have your spouse file for Innocent Spouse Relief. This would allow her to keep her refund.
"...You must meet all of the following conditions to qualify for innocent spouse relief:
- You filed a joint return that has an understatement of tax that's solely attributable to your spouse's erroneous item. An erroneous item includes income received by your spouse but omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they're incorrectly reported on the joint return
- You establish that at the time you signed the joint return you didn't know, and had no reason to know, that there was an understatement of tax and
- Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax..." IRS Topic No 205
This link is to the IRS Topic No. 205 Innocent Spouse Relief (Including Separation of Liability and Equitable Relief) and has information that you may find useful.
