Most married couples file their income tax returns jointly. However, married couples have an option—they can file married filing jointly or married filing separately. Married couples can change their filing status from year to year. The only requirement is that they be married, which is determined on the last day of the year.
Following are three reasons a married couple may want to file as married filing separately:
They are in the process of getting a divorce. Couples getting a divorce should consider filing separately. This is particularly true if one spouse is self-employed. When filing a married joint tax return, both spouses are attesting the return is complete and accurate. One spouse may not have access to the other spouse’s books and records of their business. If this is the case, the spouse that is not in the business should not file a joint tax return. They don't have enough information to sign off that the returns are correct. If both spouses have wages and the only deductions are itemized deductions, they may want to file jointly assuming they can agree on how any tax refund should be split.
When one spouse has all or most of the income and is having difficulty paying the tax. If one spouse has all or most of the income and can't pay all of the taxes, the other spouse would want to file separately. If they file jointly, the non-working spouse will then be liable for all of the taxes on the joint return. This spouse would be better off filing separately and avoiding this obligation.
Couples whose income is similar and they have significant unreimbursed medical or unreimbursed employee expenses. Medical expenses are only allowed after they exceed 7.5% of Adjusted Gross Income ("AGI") and the taxpayer needs to have itemized deductions greater than the standard deduction. By filing married filing separately, their AGI will be lower which will allow more deductible medical expenses. These additional deductions may save each spouse more taxes than if they had filed jointly. Miscellaneous itemized deductions are only allowed when they exceed 2% of AGI. The most common miscellaneous itemized deductions are unreimbursed employee expenses, investment expenses, and tax preparation.
ACTION ITEM: A married couple can file either married filing jointly or married filing separately. Couples that are getting a divorce should consider filing separate. If one spouse has all or most of the income and can't pay the tax, they should file separately. Couples with similar incomes that have significant medical and or miscellaneous itemized deductions should determine if filing separately would save them more taxes.
Thomas F. Scanlon, CPA, CFP®