Hello there everyone! I’m Bette Hochberger, CPA, CGMA. If you’re married and tax season is knocking on your door, you’ve probably wondered whether it’s best to file your tax returns jointly or separately. It’s a decision that can have a real impact on your finances.
Don’t worry, I’m here to break down the benefits of each option, shed light on the potential downsides of filing separately, and help you figure out when filing separately might actually be the right move. So, let’s go ahead and jump in!
The Good Side of Filing Jointly
Lower Tax Bracket
Going the joint filing route can often put you in a lower tax bracket. This means you might owe less in taxes overall. The tax bracket structure is kinder to joint filers, allowing you to keep more of your hard-earned money.
Bigger Standard Deduction
Filing jointly means you get a larger standard deduction compared to filing separately. Translation: more money in your pocket and a potentially smaller tax bill.
Hello, Tax Credits!
Many tax credits, like the Earned Income Tax Credit (EITC), American Opportunity and Lifetime Learning Education Tax Credits, exclusion or credit for adoption expenses, and Child and Dependent Care Credit, are more accessible to those who choose to file jointly. These credits can seriously work some magic in reducing your tax bill!
Joining forces in filing means combining your financial info into a single return. The result? Less hassle in keeping track of things and a smaller chance of making mistakes.
Sneaky Social Security Savings
If one spouse brings in significantly more money than the other, filing jointly might save you some bucks on Social Security and Medicare taxes. That’s more money staying in your pockets!
Watch Out for Separate Filing Downsides
- Missing Out on Goodies: If you and your spouse decide to file separately, you might wave goodbye to some nice tax deductions and credits. That could mean leaving money on the table.
- Climbing Up the Tax Rate Ladder: Filing separately can sometimes mean facing higher tax rates sooner. The tax brackets for separate filers are narrower, which means you might find yourself in a higher tax bracket quicker.
- Saying Goodbye to Certain Tax Perks: Filing separately might mean giving up certain tax benefits, like contributing to a Roth IRA if your income is on the higher side.
- Adding Some Complexity: Separate filing often comes with more complex calculations and extra paperwork. Brace yourself for extra work and more room for mistakes.
When Does Separate Filing Make Sense?
Okay, so we’ve covered the good and the not-so-good, but when would you want to go down the separate filing road?
- Money Matters Separately: If one of you has some hefty medical bills or deductions that could exceed a certain income threshold, filing separately might help you maximize those deductions.
- Cutting Down Liability: Worried about a history of tax issues or not-so-squeaky-clean financial habits? Filing separately could safeguard one spouse from getting tangled up in the other’s tax troubles.
- Tackling Student Loans: If student loan debt is hanging over one of your heads, filing separately might be a clever move. It could make managing those federal student loan repayment plans a bit smoother.
- Dodge the Joint Liability Bullet: If there are concerns about accuracy or honesty in reporting, going the separate filing route might help reduce the joint liability you both face on the tax return.
So, to sum it all up, the choice between filing jointly or separately as a married couple isn’t a one-size-fits-all deal. Your decision will depend on factors like your income, deductions, tax credits, and your unique financial situation. If you’re feeling a bit lost in the tax maze, don’t fret. Reach out to me today to learn more.
As always, stay safe, and I will see you next time.