When is it better to file "married filing separately" vs "married filing jointly"?

Almost all answers suggest filling married vs married filing separately.  But what about a situation where AMT applies?  We lose some deductions (dependents and I believe some of our state and/or property tax) through AMT.  But if we file separately the spouse with the lower income would be able to claim these.  Could this be one of the rare cases where married filing separately makes sense or am I missing something?
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Yes, being subject to AMT is one of the cases where it MIGHT be better to file separately. When you do the comparison, though, keep in mind that when you file married filing separately, if one of you itemizes deductions the other must also itemize. You can't have one of you itemize and the other take the standard deduction.

If you are using desktop TurboTax, not TurboTax Online, you can use the What-If Worksheet to do an estimate of how separate returns would work out compared to a joint return. First complete your joint return. Then open the What-If Worksheet in Forms Mode. After you open the form, before you do anything, click on Help Center. In the introductory information at the top of the Help, scroll down a bit until you see the following paragraph.

"If you are preparing a Married Filing Joint vs Married Filing Separate comparison, it is very important that you read preparing a Married Filing Joint Versus Married Filing Separate Analysis."

The last part of that sentence is a link. Click on that link in the Help (not here in the Live Community) and follow the instructions there.

Note, however, that this comparison is only for your federal tax return. It does not take state taxes into consideration.
  • We're using the desktop version of Turbo Tax and I cannot find the "What-if worksheet" within the product.  Searching only searches our return, and the 'help' just gives the standard differences between the filing statuses.  I cannot find the worksheet anywhere!
  • LarryKathy - You have to switch to forms mode, Click the Forms icon at the top right of the TurboTax window. Once you are in forms mode, click the Open Form icon near the top left and search for the worksheet, or expand the list for the federal return and look for the worksheet near the end of the list.
  • If MFS, can taxpayer claim spouse as a dependent? My spouse received SSD lump sum payment - no witholding... did MFJ, and  tax owed was $7,280 - tried comparison and moved all exemptions to my side - zero on her side - reduced the tax due considerably... wondering if this will work?
  • I did the above and TurboTax in almost all cases other than wages, split the amount simply in half between taxpayer and spouse. It did not split the other income or deductions according to the owner??? Is this an error or is there a workaround? If no easy fix, how can I change the amount in the form? I tried to enter a change in the form but it would not take it. Thanks.
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It is almost always better to file jointly.  The exception to the filing-together-is-better rule is if one of you has substantial medical expenses or miscellaneous itemized deductions (such as union dues, certain legal fees, investment management or trust fees, or nonreimbursed business expenses), which are deductible only when their cost exceeds a certain percentage of your income. In this case, filing separately lowers the income bar against which these deductions are measured.

    If you or your spouse has miscellaneous itemized deductions that exceed 2 percent or medical expenses that exceed 7.5 percent of your adjusted gross income, compute your taxes both ways to see which option makes more financial sense. Otherwise, file jointly.
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    You cannot claim your spouse as a dependent in your circumstances.  If you switch to MFS, you have to both itemize or both take the standard deduction.
    • I filed form 1040 for tax year 2010 (last year) - married filing jointly. My wife receive a lump sum social security disability payment in 2010 that included benefits for 2008 and 2009... she did not have any tax witheld from the payment (her friends advised her that social security benefits are not taxable). Turbo tax said we owed a little over $7000. I had waited until just before the deadline to file and realized too late that I had a rather complicated situation and a large tax debt. Since it was too late to run the numbers again, I emptied our rainy day fund and payed the amount due.

      Since then, I have been wondering if we could have reduced our tax due by filing separately, and maybe taking advantage of medical deductions by applying them to her income (which was social security benefits only).

      Although I've already filed and payed, I feel like I could have done better, and I would like to get some of that back as an overpayment of taxes.

      Does anyone out there know the facts about how tax on social security works?

      Would filing separately reduce our overall tax debt?

      Could I file an amended return to change from MFJ to MFS?

      Is there ANY way I could get some of that $7K back?

      Any recommendations for how to handle tax year 2011? My wife is still receiving social security benefits... and even though I gave her a stern lecture at tax time last year, she forgot to set up witholding until I asked her about it in December '11... so we will owe the IRS again.
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    "Could I file an amended return to change from MFJ to MFS?"

    No,  It is not allowed after the filing due date.

    SS benefits are taxable (0-85%) depending on other income.

    Your other questions can best be  answered by doing "what if's" and observe the results.   Each taxpayers circumstances are different.  There are too many variables to give a generic answer.
    • Slow Joe - The only thing that can help reduce the tax on the lump sum from Social Security is the lump sum election (LSE). You posted a question asking for help with that last April when you were working on your 2010 return. It's not clear whether you succeeded in completing the entries. The lump sum election doesn't always save money. Sometimes you come out better if you don't use it. When you enter the information for the earlier years in TurboTax, the program figures out whether it's better to use the lump sum election or not, and fills out your return accordingly.

      Look at line 20a on your 2010 Form 1040 and see if it has the letters LSE on the dotted line to the left of the amount. If not, go through the Social Security section of the 2010 interview again and see if using the lump sum election reduces the tax. You will have to enter information from your 2008 and 2009 returns. If so, you can file an amended return for 2010. If it does say LSE on line 20a, check the Earlier Year Lump-Sum Social Security Worksheets for 2008 and 2009 to make sure the information entered on them is correct. If it's all correct, that's the best you can do.

      Even if you could change from MFJ to MFS now, it wouldn't help. A lump sum from Social Security is not one of the situations where MFS can save money.

      If you have further questions about the Social Security lump sum election or amending your 2010 return, please post a new separate question of your own. But only post one question, and keep all of any current discussion in that one thread. It's too hard to keep track of all the information when it's scrattered among several threads.
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