Married: Should You File Jointly or Separately?

Deciding to file jointly or separately has a few new considerations for the 2018 tax year. Some couples believe there are no secrets, including taxes, which should divide them. Others value their individuality. There are two filing statuses for married couples:

Married filing jointly is a single return for both spouses which combines incomes and deductions. Responsibility for payment is combined and also could rest solely on one spouse, or involve one spouse in the other spouse’s possible tax fraud, evasion or problems with the IRS.
Married filing separately results in each spouse filing their own returns and keeps incomes and deductions separate. In most instances, problems one spouse may have with the IRS are separate from the other spouse.

Whether you were married on December 26, 2018 or January 2, 2018, if you are married on December 31, 2018 and not separated with a separate maintenance decreed, the IRS considers you married with options. But you only have two: file jointly or separately.

Trying to decide whether to file jointly or separately?

The Tax Cuts and Jobs Act (TCJA), the changing roles and opportunities for women and the very nature of marriage, have generated questions not often asked several years ago. There are still changes to tax laws through the TCJA that have not resulted in final instructions. Generally, married filing jointly will be the best option, but there are specific issues to consider before making the choice.

Look at some of the disadvantages of married filing separately.

Both spouses must file using the standard deduction or itemizing. One spouse cannot claim the standard deduction and the other choose to itemize. Both much either itemize or use the standard deduction method. This could be a problem if one spouse has a small business with associated expenses and possible deductions and the other spouse has a 10% bracket job.
Dependent children can only be claimed on one tax return, even if expenses are incurred by parents
Tax breaks for both filers will no longer be available. These include breaks involving adoption expense credit, Child and Dependent Care Credit, The American Opportunity and Lifetime Learning education credits, student loan interest and the tuition and fees deduction.
Tax brackets have changed. Higher tax rates begin at lower levels of income. The spouse who earns less could end up paying a higher tax rate than their partner with a higher income.
Stardard deductions have changed. For the tax year 2017, the standard deduction for a single taxpayer was $6,350 with one personal exemption of $4,050, for a possible standard deduction of $10,400. The TAJC combined these into a larger standard deduction of $12,000 for 2018. The standard deduction for joint filers is now $24,000.
Tax credits are reduced or eliminated. Filing separately reduces or eliminates many potential tax credits. Depending on the income difference, whether you are purchasing a home together or funding retirement or offsetting capital losses.
Complicated tax rules involving IRA and 401k contributions could severely limit your ability to benefit from maximum deduction options
Community-property states consider all income earned during a marriage to be equally owned. A low-income spouse could be burdened with additional income from a high-earning spouse and thrown into a a higher tax rate. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. You’ll need to follow your state’s laws when calculating community income and separate income for your federal return. Guam and Puerto Rico are also community-property regions, while Alaska has an optional community property system.

What are some of the benefits of married filing separately?

If one spouse enters the marriage with a messy tax history, filing separately could be the best option. Filing jointly makes both responsible for the information provided on the return and for any tax obligation. This could also include existing penalties and interest incurred and brought forward into married filing jointly returns.
Along this same line, if one spouse is not entirely comfortable with their spouse’s financial dealings or business partners, choosing to file separately could be protection against tax liabilities from that direction.
If one spouse has high deductible medical expenses which can only be deducted to the extent that they exceed 7.5% of AGI. Beginning with the 2019 tax year, that 7.5% will return to its previous level of 10%. This deduction is especially beneficial to people with high medical expenses and low incomes.

Should you file jointly or separately?

It could be a tough call. Often decisions involve one spouse having serious tax problems such as liens resulting from unpaid child support, student loans, or taxes; or underestimation of with holdings, lack of transparency, etc. There are also some taxpayers who, for various reasons, are not comfortable with their spouse’s interpretation of tax compliance and do not want to be involved in any potential tax consequences.

There are, however, some very specific regulations which can lessen the severity of restrictions imposed on an individual choosing married filing separately. Some of these regulations deal with certain victims of domestic abuse and spousal abandonment and their ability to claim Premium Tax Credit benefits.

Was your previous filing status your best option?

If you’re not sure you made the best decision in the past, there are remedies. Generally, any time within 3 years from the due date of the separate return (or returns), you can amend your filing status from a separate return to a joint return. On the flip side, the IRS also, in some cases, offers relief from joint responsibility. One option is through the Request for Innocent Spouse Relief.

What’s the bottom line?

The Tax Act and Jobs Act made a lot of changes to the tax laws. Many of them are still open to interpretation and could have far-reaching implications. Before you make a decision to file your taxes as married filing separately, we need to talk. Both of these options, whether to file jointly or separately, could have unique possibilities, benefits, or pose serious problems, depending on your unique situation.

If you’ve never consulted a CPA tax specialist or understood why an individual would need this type qualified professional service, now is the time to contact us. Our goal is to become part of your overall life and business goal planning team so that you’ll be able to establish your own goals and know that you have a trusted professional on your team. We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life. We’re here for YOU.

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File Jointly or Separately: What the IRS Says