Should a Married Couple File Taxes Jointly or Individually?

April 16, 2019by wpx_alleviatetax0
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Love is a beautiful thing, and the most recent Royal Wedding has been a highlight in the news, more focused on the fantasy of Prince Harry and Meghan Markle than the day-to-day practicality of what happens once the proverbial knot is tied.

Unless you’re a royal who doesn’t ever have to handle such tedious things as finances directly, it can be a bit confusing when your status changes from “single” to “married.” Besides the daunting tasks of creating a household budget and saving for the future, a pressing question is whether you should file your income taxes jointly or if you and your spouse should each file an individual return. Here’s the plus and minus of each.

Married Filing Jointly

The majority of married couples file jointly in a single return that combines both incomes, exemptions, deductions, and tax credits—or even if one of you had no income or deductions. There are advantages to filing jointly, like qualifying for tax credits and possibly receiving higher income thresholds with the ability to obtain certain tax breaks depending on the amount of your dual income.

You can file jointly if, by December 31 of a tax year, you are either married and living together, living in a common law marriage recognized in the state where you reside, or even if you are living apart but are not legally separated under a decree of divorce. If your spouse suddenly dies and you don’t remarry within the year, you may file a joint return for the last year, but it will be the last one allowed with that spouse.

Married Filing Separately

If you’re married but intend on filing a separate return, then you will only report your own income, exemptions, tax credits, and deductions on your individual return.

If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), then the income you and your spouse earn is split evenly, as are your expenses (unless paid by one spouse with separate funds, such as inheritance money or pre-marriage savings).

There are many disadvantages to filing separately that might outweigh any benefits—such as not being able to deduct things like your student loan interest or the entire cost of child or elderly parental care expenses because dependent care assistance is limited to $2,500 instead of the $5,000 if you file jointly as a couple. Pivotal credits and deductions are reduced at income levels that are half of those for a joint return, including child tax credit, retirement savings contributions, and other deductions. Your capital loss deduction limit caps off at $1,500 instead of $3,000 if you file jointly.

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If you own real estate and actively manage a rental property, it will be harder to deduct any losses you incur. If your spouse itemizes deductions, you probably cannot claim the standard deduction, but if you are allowed to claim the standard amount, this will be at half of what is allowed on a joint return.

Also, unless you are legally separated during the tax year, you’ll have to include up to 85% of any Social Security benefits as income, and you may not be able to deduct IRA contributions if an employee retirement plan covered either of you at work during the tax year.

Conclusion

Ultimately, most married people save on taxes by filing jointly, primarily when one spouse earns most or all of the income because it shifts the high earner’s income into a lower tax bracket. If spouses earn similar salaries, there shouldn’t be much difference in their tax rates whether they decide to file jointly or separately.

Just be aware that when a married couple files jointly, each spouse is liable for the entire tax amount that may be owed on the return, plus any interest, penalties, and fines if someone’s math ends up being terribly incorrect.

It’s always advisable to consult a professional accountant to make sure you are doing everything correctly and to the best possible financial advantage so that you too can live as happily ever after as the Duke and Duchess of Sussex.

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