Once a couple is married, there is the opportunity to share everything together, be it your life, a home, food, a bank account, bills, and more. But is it really a good idea to share your tax returns as well? The truth is, it depends on your preference as well as other factors. Sometimes, it can actually be more beneficial for both parties to file their taxes separately. Statistically, only five per cent of married couples currently file taxes separately, as according to the IRS. The popular opinion is that filing joint taxes equals a lower tax rate. Let us consider the other factors that may come into play when deciding on whether you and your spouse should file taxes jointly.
Credit Schemes for Joint Tax Filing
There are many advantages to filing a joint tax return with your spouse. One of them is the largest standard deductions each year, allowing couples to deduct a significant amount of their income immediately, through credit schemes such as the:
- Earned Income Tax Credit
- American Opportunity and Lifetime Learning Education Tax Credits
- Exclusion or Credit For Adoption Expenses
- Child and Dependent Care Tax Credit
With the higher income threshold for joint tax filers, it means potentially being able to qualify for certain tax breaks.
Disadvantages Of Filing Separately
Filing taxes separately might also put you and your spouse at a disadvantage as couples who file separately receive fewer tax considerations. For one, couples who file separately are automatically disqualified from the above mentioned credit schemes. They also cannot apply for deductions from student loan interest, or on tuition and fees. Furthermore, separate filers usually receive a much lower standard deduction compared to joint filers, sometimes up to 50 per cent less. Also, the capital loss deduction limit is $1,500 each when filing separately, as opposed to $3000 on a joint return.
Why Should We File Taxes Separately At All?
In rare situations, filing separately may actually help you save on your tax return. For example, if you or your spouse has a large amount of out-of-pocket medical expenses to claim, it can be difficult to claim most of your expenses with a joint return as the combined adjusted gross income (AGI) would be higher than if you had claimed individually. This is because the IRS only allows taxpayers to deduct the amount of these costs that exceeds 7.5 per cent of their AGI in 2017 and 2018. Filing separate returns may also be a better idea for you and your spouse if it allows you to claim more of your available medical deductions by applying the deductible threshold of 10 per cent (beginning 1 Jan 2019) to only one of your incomes.
The best way to decide if you should file your taxes jointly or separately is to prepare both forms and compare the two. Double check your calculations, and then compare the net refund for each form. Alternatively, you could approach tax professionals such as Tax Defense Partners who are experts in the field of taxation. Contact us today for professional advice and assistance for your tax concerns.