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File Jointly or Not?

For many married couples, filing a joint tax return is a good idea, but there are exceptions. In fact, over 90% of married couples file a joint federal tax return. Filing jointly can be convenient and often times there’s a financial advantage, but that doesn’t mean it should be done without consideration.marriagetaxesYears ago, there was less incentive to file jointly because the so called “marriage penalty” for doing so was effectively greater. A “marriage penalty” doesn’t actually exist in the tax code, but in the past, income tax brackets were structured in a way that caused spouses with similar incomes to pay more in taxes by filing jointly than single taxpayers did.

There are many good reasons to file jointly, nearly all of them involve saving money! Currently, married taxpayers who file separately face the 28%, 33%, 35%, and 39.6% income tax brackets at much lower income thresholds than other unmarried taxpayers. In case you were wondering, married is married, same sex couples and couples of the opposite sex are treated the same, as it should be.

Joint filers can claim significant tax credits that you cannot if you’re married filing separately. If you want to claim the American Opportunity Tax Credit, the Lifetime Learning Credit, the Elderly or Disabled Credit, or the Earned Income Tax Credit (EITC), you have to file jointly. Joint filing also gives you the potential to claim the full Child Tax Credit, rather than a reduced one.

Deductions also decrease when you file separately as a married couple. Standard deductions fall significantly, phase-out ranges are affected, and some itemized deductions aren’t even available for married couples who don’t file jointly. Worse than that, couples that file separately can only deduct 50% of their losses for capital gains compared to joint filers. In addition, if one spouse elects to itemize deductions, so must the other. Therefore, the spouse with fewer deductions has no ability to use the standard deduction to lower their taxable income.

Joint filing even helps with the Alternative Minimum Tax. When you file separately as a married couple, your AMT exemption falls by 50%. So you may be more susceptible to the AMT if you file separately. If the AMT affects you, you will find many federal tax deductions reduced or unavailable to you.

Social Security benefits are minimal all on their own, but if you file separately the taxes could bring that amount down even more. This is because Social Security gives you a “base exemption,” an income threshold above which Social Security benefits may be taxable. The base exemption for married couples filing jointly is $32,000, meaning that if 50% of the Social Security benefits you receive in a tax year plus your other income that year exceeds $32,000, taxes may apply. The base exemption for married couples filing separately is $0!

So why would you not file jointly when married? In certain circumstances, filing separately may be wiser. Maybe you don’t trust your spouse financially, yes some people do feel this way. If your spouse interprets tax laws very loosely, filing jointly could prove hazardous in the case of an audit or other troubles. Both spouses must sign a joint return, meaning that both spouses are legally responsible for all taxes, penalties, and fines linked to that return.

Maybe you or your spouse have large out-of-pocket medical expenses. If so, and if the spouse contending with such bills earns much less than the other, it could make sense to file separately. By doing so, the spouse with less income might have an opportunity to meet the threshold needed to itemize medical expenses. It’s also possible you may be considering a separation or divorce. If that’s the case, then it may seem only natural to begin filing separately while still married. Doing so now may lessen the chance of the two of you wading through tax issues in the aftermath of a split.

If you are unsure about whether to file jointly or separate, or if you have other tax questions you should always seek the advice of a qualified tax professional. Most couples find that filing jointly works out best, but as we’ve shared, there are exceptions.

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About Stephen Rischall

Stephen is an award winning fiduciary financial advisor. He began learning to invest at the age of 13 and helped manage the University Corporation Student Investment Fund while studying finance in college. Stephen has been featured as the financial expert for millennials on live radio and in the news. He is an avid adventurer and is passionate about helping people make smarter financial decisions.
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