Taxpayers who are married have two options for filing their tax returns: either jointly or separately. The IRS offers incentives in the form of different tax breaks to couples who file together. While it’s generally most advantageous for married couples to file a joint return, there are some situations where filing a separate return may be a better option.
Benefits of Joint Returns
Filing a joint return with your spouse allows you one of the largest standard deductions available, which means you’re able deduct a decent portion of your income from the start. Joint filers can deduct two exemptions, and generally find it easier to qualify for different tax credits, including:
- Earned Income Tax Credit
- American Opportunity and Lifetime Learning Education Tax Credits
- Adoption Credit
- Child and Dependent Care Credit
Those who file a joint return are subject to higher thresholds for income limitations for credits and deductions. This allows married couples to earn more income but still qualify for different tax incentives.
Filing Separate Returns
Those who opt to file a tax return separately from their spouse, keeping their income their own, should be aware of the implications that come with filing in such a way. Separate filers are subject to a higher tax rate and a lower standard deduction than those who file joint returns. For 2016, the standard deduction for married taxpayers who file a separate return is $6,300, whereas joint filers receive $12,600.
Filing a separate return disqualifies you for many credit and deductions, including the ones above. Also, you may find a limitation on the amount of IRA contributions you can deduct. Deductions for student loan interest, tuition, and fees are not available for separate filers.
The capital loss deduction for taxpayers who file a separate return is limited at $1,500, as opposed to the $3,000 available to joint filers.
Despite these limitations, there are cases where filing separately may be beneficial. For instance, you are only able to deduct medical expenses that exceed 10% of your adjusted gross income, so if you or your spouse have many medical bills, you may want to keep your income separate, therefore reducing your AGI and increasing the amount you can deduct.
In this case, the 10% limit will apply to only one of your incomes, meaning you’ll be able to deduct more of the expenses. For 2016, a temporary exemption exists for taxpayers over 65 and their spouses, which lowers the limit to 7.5% of AGI. This exemption expired on December 31, 2016.