26 Aug - Filing taxes on your own or with your spouse. Which one is better?
Most couples file their return jointly, merging both combined incomes and shared deductions. Tax law changes have eased the marriage penalty, encouraging the trend to file jointly. This “marriage penalty” tended to show up when working spouses made roughly comparable incomes. In many cases, filing jointly would result in a greater amount owed on their combined return as opposed to filing as a single taxpayer, forcing the couple to pay an additional fee thought of as a penalty. A clear picture of both your finances will allow you to properly assess the situation and decide when filing separately or jointly is best.
Filing Separately
Separate tax returns can produce savings if one spouse has a lot of medical expenses and a low income. By filing separately, the partner with the medical bills may be able to exceed 10% of the adjusted gross income threshold needed to itemize medical costs. Taxpayers 65 years or older may still use the 7.5% requirement for their tax filing, but the 10% threshold applies to everyone in 2020. When filing jointly, only one person needs to satisfy the age requirement to receive a lower deduction percentage. Couples sometimes elect to file separately when the taxes due on combined returns are comparable to taxes owed when filing on their own. Filing separately allows each spouse to maintain responsibility for the accuracy of their own individual tax returns and the payment of tax without any additional liability. It is encouraged to file separately when your spouse practices questionable tax filing strategies. If it comes down to it, there is legal protection in place for spouses who are unaware of illicit activity, however, that spouse needs to have proof that they were truly not cognizant of any tax scheme. It is also advised to file separately when a marriage is breaking down to avoid the hassle of sorting out tax costs later on.
Filing Jointly
As a married couple, filing jointly is of course the more common choice. This route qualifies you for a number of tax breaks, including:
- The earned income tax credit
- Student loan interest deductions
- Deductions for college tuition
- Child and Dependent Care Tax Credit
- Traditional IRA deductions