Yes. If you have 2 children, you can split them between you. Here are some things to think about.
The person who claims a child as a dependent on his tax return also gets to claim the child tax credit of up to $1,000 for each child under the age of 17. The child tax credit does have income limits. If you file separate returns, you cannot claim the full credit if your AGI is more than $55,000. The limit for couples filing jointly is $110,000 for the 2012 tax season. If one spouse earns less than $55,000, it might be worth it to have that spouse claim the child as a dependent, so that she can also claim the credit
Depending on your circumstances, it might make more sense to choose head of household instead of married filing separately. Even if you are still legally married, you can choose to file as head of household if your spouse didn't live in your house for the last six months of the year. Your child needs to live with you for at least half of the year and you need to pay more than half of the cost to maintain the house. The standard deduction for head of household status is higher than the deduction for married filing separately.
Depending on a couple’s circumstances, the benefits listed above may be valuable, but there are some potential disadvantages with the MFS status.
The first is that if one itemizes, both must itemize, even if one has little in the way of itemized deduction. So for that spouse, taxable income may be significantly higher on their return.
Second, with MFS status, all education credits and deductions are disallowed, including student loan interest, which could be as much as $2,500 on a MFJ return. In addition, you cannot exclude from income the interest on U.S. savings bonds cashed in to pay education expenses. Similarly, you would not qualify for the earned income tax credit, the child and dependent care credit, or the credit for adoption expenses.
Third, the upper end of the phase-out range for IRA contributions is $10,000 for MFS (way below the $61,000 threshold for Single or $98,000 for MFJ). Other phase-out ranges are lower for MFS than for Single filing status. Some credits are halved including the child tax credit and the retirement savings contribution credit. Also, the income exclusion for employer provided dependent care assistance is reduced by half to $2,500, and your capital loss deduction is halved to $1,500.
