One of the many benefits of marriage is the tax advantages that it can provide. Federal taxes tend to reward those who are married and filing jointly with additional benefits that are not available to unmarried couples or those who are married but filing separately. But, there are some cases where filing separately can be advantageous, and here are the pros and cons of choosing that route.
The Benefits of Married Filing Separately
While there are some serious disadvantages to filing separately, there can be some great benefits as well, depending on the circumstances. These include:
The Ability to Deduct Medical Expenses
Federal law allows medical expenses to be deducted if they are greater than 7.5% of your total income. If one spouse has had some major medical expenses in the past year, filing separately can allow the deduction threshold for medical expenses to be met more easily, because it will be based only on that ’spouse’s income. It would be much harder to meet that 7.% mark with two incomes, especially if one spouse earns considerably more than the other.
Better Student Loan Repayment Options
There are several federal programs that can reduce the monthly payments on federal student loans, but they are income-dependent. By filing separately as a married couple, a spouse with student loans can report a lower, single income, allowing him or her to qualify for lower monthly payments or better repayment options.
Avoiding the Tax Liabilities and Penalties of a Spouse
If your spouse owes money to the IRS or has incurred penalties, filing separately can protect your income from those decisions. And in the event of a divorce, filing separately allows you to disentangle your finances from your spouse’s.
The Disadvantages of Married Filing Separately
By filing separately, you will be giving up some serious benefits of filing jointly. The disadvantages can include:
Lower Deductions and Tax Credits
In general, federal tax credits like the child tax credit, dependent care credits, the earned income tax credit, student loan interest deductions, lifetime learning credits, American opportunity credits, and adoption credits will either become unavailable or will be greatly reduced when filing separately.
Less Favorable Tax Brackets
Filing jointly allows married couples to access more favorable tax brackets, so by filing separately, tax rates and total tax liability will increase.
Lower Allowable IRA Contributions
By filing separately, married couples will have lower IRA contribution limits. This can make it harder to save for retirement.
Tax Planning and Preparation Services in Dallas
Need help making the best tax decisions for your needs? Talk to our team at Gurian CPA. Whether you are single, married filing jointly, or married filing separately, we can help you find all the decisions and credits you are eligible for, keeping your tax liabilities to a minimum while boosting your income. We serve clients throughout the Dallas and Houston areas, and we offer everything from tax planning and preparation to business accounting, payroll, business entity formation, and more.
When you want a reliable, professional CPA to help you navigate complex tax planning issues, call Gurian CPA at (469) 306-9866. We serve Dallas, Houston, and the surrounding areas.
