Married, filed separately last year. Wife has student loans. Got car & health insurance payouts. Unsure how to file now—joint or separate? What’s best for us?

[luispenamarte]

With the car payout we bought a car (no new) but didn't file it because of lack of experience filing taxes. Is there anyway to file it now? or will it bring me issues with the IRS in the future?

[LindaS5247]

Generally, it is more advantageous to file jointly. Filing jointly almost always gives you a bigger tax refund than filing separate tax returns.

 I am not sure what you are asking about filing a tax return. Did you miss filing a recent tax return? If so, what tax year? Do you know if you owed tax for the year you did not file?       

There are many advantages to filing a joint tax return with your spouse. Joint filers receive one of the largest Standard Deductions each year.

Couples who file together can often more easily qualify for various tax credits, like:

• Earned Income Tax Credit
• American Opportunity and Lifetime Learning Education Tax Credits
• Exclusion or credit for adoption expenses
• Child and Dependent Care Credit

Couples who file separately typically get fewer tax benefits. Separate tax returns may result in more tax.

When It Makes Sense to File Separately:

• Medical expenses: If you or your spouse had a large amount of out-of-pocket medical bills, filing separately might help you surpass the IRS’s threshold to deduct these costs. That’s because the threshold is based on a percentage of your Adjusted Gross Income (AGI), which would be lower if only considering one income.
• Student loan payments: If your student loan repayment plan is determined by the income on your tax return, filing separately may help you keep your payments more manageable.
• Separated finances: In situations where couples prefer or need to keep their financial matters distinct—such as when preparing for a divorce — filing separately can provide that financial division. Filing separately can also limit your liability for your spouse’s tax matters.

Click here for How can I compare Married Filing Jointly with Married Filing Separately?

Click here for How Should You and Your Spouse File Taxes? Married Filing Jointly vs Separately

Click here for  When Married Filing Separately Will Save You Taxes

[luispenamarte]

Hi, thanks for your response.

I did file my taxes last year, and I filed separately. I'm not sure if I owe anything (I haven't received any emails, mail, or phone calls from the IRS). Someone mentioned that I might be able to claim what I spent on the car, but I'm not sure if I can still file it this year or if I should just let it go.

For more context, I'm a resident alien. My wife has student loans— I don’t. She was in a car accident and received payouts from both car and health insurance. Due to my lack of experience, I wasn't sure if I needed to report anything related to those payouts on last year’s tax return. I just would like to know, if based on this info is it better for me to file jointly or separately?

Thanks in advance, sorry if I was confusing with my wording.

[DaveF1006 · Accepted solution]

Insurance payouts intended to cover the cost of repairing or replacing a damaged vehicle, or for medical expenses resulting from an accident, are typically not considered taxable income. If you received payouts from punitive damages, then these would be taxable if you were awarded damages in a court of law.

Car expenses are generally not deductible except if you are running a business and receiving income from it. if you are an employee, these expenses aren't deductible.

Based on this information, I would recommend to file jointly because of lower tax rates and access to more deductions/credits, including education-related benefits that might help with your wife's student loans.