You must look at your income plus
your spouse's income as one bit pot. One income is taxed on top of the
other, not separately and added together on a joint return. You can file
married filing separately, however, it is usually not beneficial. There are
advantages to married filing jointly, read on:
Couples who file together can
usually deduct two exemption amounts from their income and they might more
easily qualify for multiple tax credits such as the:
Joint filers mostly receive higher income
thresholds for certain taxes and deductions – this means they can earn a larger amount of income and potentially
qualify for certain tax breaks.
Consequences of filing your tax returns separately
On the other hand, couples who file separately receive few tax
considerations. Separate tax returns may give you a higher tax with a higher
tax rate. The standard deduction for separate filers is far lower than that
offered to joint filers.
- In 2016, married filing
separately taxpayers only receive a standard deduction
of $6,300 compared to the $12,600 offered to those who
filed jointly.
- If you file a separate
return from your spouse, you are automatically disqualified from several
of the tax deductions and credits mentioned earlier.
- In addition, separate filers
are usually limited to a smaller IRA contribution deduction.
- They also cannot take the
deduction for student loan interest, or the tuition and fees deduction.
- The capital loss deduction
limit is $1,500 when filing separately, instead of $3,000 on a joint
return.
When you might file separately
In rare situations, filing separately may help you save on your
tax return.
For example, if you or your
spouse has a large amount of out-of-pocket medical expenses to claim and
since the IRS only allows you to deduct the amount of these costs that
exceeds 10% of your adjusted gross income (AGI), it can be difficult
to claim most of your expenses if you and your spouse have a high AGI.
- Filing separate returns in
such a situation may be beneficial if it allows you to claim more of your
available medical deductions by applying the 10% threshold to only
one of your incomes.
There is a temporary exemption from Jan. 1, 2013 to Dec. 31,
2016 for individuals age 65 and older and their spouses. If you or your spouse
are 65 years or older or turned 65 during the tax year you are allowed to
deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted
gross income. The threshold remains at 7.5% of AGI for those taxpayers until
Dec. 31, 2016.
Deciding which status to use
The best way to find out if you should file jointly or
separately with your spouse is to prepare the tax return both ways. Double
check your calculations and then look at the net refund or balance due from
each method. If you use TurboTax to prepare your return, we’ll do the
calculation for you, and recommend the filing status that gives you the biggest
tax savings.
