Best Married Filing Option
Taxpayers have the option of filing jointly or separately with their spouse. In my practice, taxpayers pose this question often, particularly newly married couples. The election is made when filing your tax return, and once made can only be changed in certain circumstances. Generally, filing jointly will make sense taxwise, but there are situations that may warrant filing separately.
Married Filing Jointly (MFJ)
MFJ will usually result in less tax, particularly if one spouse has significantly less income. This is true because filling jointly allows taxpayers to take advantage of combined joint tax brackets. The IRS prefers the joint option because it has two taxpayers to collect from and generally rewards the election by offering some tax savings. If you are married you generally cannot file as head of household.
Taxpayers married to non-resident spouses with no U.S. income are surprised to learn they are able to file jointly and spread one income over combined brackets. An election must be filed and signed by both spouses. It is also possible to amend the filing from separately to jointly to claim a refund. But be careful here as you must include your spouse’s worldwide income (subject to foreign tax credits) and possibly subject yourself for foreign asset disclosures.
Married Filing Separately (MFS)
Filing separately will likely result in more combined taxes owed, partly because some deductions are not allowed for couples filing separately. MFS does generally not provide for the child and dependent care credit. Though filing separately may equate to more combined taxes owed, it may make sense in certain circumstances to protect one spouse.
MFS may make sense when one spouse has low income and has selected an income-driven student loan repayment plan. The taxpayers should weigh the tax increase over the savings on the loan payments. MFS may also be advised to protect one party where one spouse has little or no tax withheld and a large balance will be due. A balance due on a jointly filed return means that the IRS can collect from both parties. Similarly, one spouse may want to file separately to protect a refund that be subject to diversion for back taxes or other debts owed by one spouse.
Taxpayers contemplating divorce or separation may want to consider MFS to facilitate division of assets. Also, taxpayers should know that the filing election applies to state taxes. Some married couples living in different states may file jointly for federal and separately for state tax purposes.
Perform a Tax Comparison
A good tax advisor should be able to crunch the numbers both ways, offering you peace of mind. Make sure you communicate to your tax preparer all the variables for the calculation. There are certain circumstances where MFS may result in less tax (i.e. if one spouse has high medical deductions limited by 7.5 percent of your adjusted gross income), but for the most part MFJ will save money. Aside from the tax savings, make sure to consider all the outside factors to weigh in your decision.