Tax Advice for Couples

by Matthew Person on March 15, 2016

Should Married Couples File Jointly or Separately?

Married couples can choose to file jointly or separately but there are considerations for both approaches. When filing separately, both taxpayers have to agree to do so, and both have to agree to either itemize deductions on Schedule A or claim the standard deduction. More couples are choosing to file jointly due to tax-law changes during the past few years that have reduced the “marriage penalty”. The “marriage penalty” tended to increase the turn burden for couple where both partners work and their incomes are about the same. In many cases, the couple paid more taxes on their combined return than did unmarried couples filing separate returns as single taxpayers, forcing the married pair to face a tax penalty. Tweaks to the tax brackets have helped reduce this problem.

Although the tax-rate disparities have been reduced for married couples in the lowest tax brackets, spouses who file separately will find the tax rates for them aren’t as amenable in the upper ranges. In fact, a check of the tax brackets shows married-filing-separately taxpayers face the 28 percent, 33 percent, 35 percent and 39.6 percent brackets sooner than do other unmarried taxpayers.

Many tax-cutting credits and deductions are forfeited when couples file separate 1040s. You can’t take the earned income tax credit, claim adoption expenses or child and dependent care costs, use educational tax credits or even deduct the interest you paid on a student loan if you’re married and filing separately. If you have children, you might find the child tax credit reduced because it phases out at different income limits for the various filing statuses. And the amount of capital gains losses you can deduct is cut in half.

Separate returns could produce tax savings if one spouse has a lot of medical expenses and a low income. By filing separately, the partner with the doctor bills might be more likely to meet the 10 percent of adjusted gross income threshold needed to itemize medical costs. Taxpayers age 65 or older can still use the 7.5 percent threshold through 2016. Only one spouse on a joint return must meet that age to get the lower deduction percentage.

The married filing separately rules are complicated further if you live in a community property state, which includes Louisiana. State law determines whether your income can be considered as separate or community for tax purposes. Keep in mind that flexibility in taking deductions also is sacrificed when filing separately. If one spouse itemizes, both must itemize, splitting the items to be listed on a separate Schedule A for each. That means a partner with few deductions couldn’t use the standard amount and might get cheated when it comes to reducing taxable income.

We can help you determine whether filing jointly or separately is the best strategy to reduce your overall tax burden. Get in touch with us to schedule your FREE tax analysis!

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