I would guess a full 50% of the questions that come my way about filing status focus on whether it makes sense to file as married filing separate. My answers tend to be split between “no because you’re single” and “it depends.”
My advice is not to make this any more difficult than it needs to be. Your marital status is determined as of the last day of the tax year (that’s December 31 for most taxpayers) according to state law. If you’re married on that day, you’re married. If you’re not, you’re not. There’s not much room for a gray area with two exceptions: same sex marriages are not recognized under federal tax law and you may be considered single *if* your state allows for legal separation.
If you are married, you generally have two choices: married filing jointly and married filing separate. In most cases, if you are married and choose to file as married filing separate, you will usually pay more tax. Usually. Some exceptions apply. But in the great majority of cases, you will pay more tax.
If you file as married filing separate, you still have to coordinate a bit with your spouse. While you include only your own income, deductions, exemptions and tax credits, you still have to include your spouse’s information, including Social Security Number or Taxpayer ID. You also have to elect the same deduction option as your spouse: you must both opt to itemize or you must both opt to take the standard deduction. You may not each independently elect itemized or standard deductions.
If you file as married filing separate, you lose the option of claiming some tax preference items. For example, you cannot take the student loan interest deduction, the tuition and fees deduction, the education credits, or the earned income credit.
So why do it? There are a few scenarios where electing married filing separate status makes sense:
- Privacy. It’s rare that your spouse’s tax return will be made public but if it is, filing separately ensures that your own returns stay private. Who falls into this category? Generally, the spouses of politicians. Think Teresa Heinz-Kerry or Cindy McCain, both wealthy women in their own right who might not want the world to know their business.
- Trust (or lack thereof). These days, many married couples maintain separate accounts (I do) and have separate assets. Sometimes it’s for convenience purposes. Sometimes it’s to keep some semblance of independence. And sometimes it’s for professional reasons. That doesn’t always translate into separate tax returns. However, if you maintain separate financial lives to the point where you don’t understand/care/want to know what’s going on with your spouse’s finances, you may also not wish to file a joint tax return. You can’t simply claim ignorance if your spouse makes a significant error: the IRS expects you to review and understand your tax return before you sign it. If you don’t have a level of comfort signing a joint return, don’t. That’s a great reason to file separately.
- Protection. There’s a great line in the movie Steel Magnolias when Truvy says to Clairee, “If you can achieve puberty, you can achieve a past.” It’s true. Many taxpayers these days marry someone with a past… past tax debts, defaulted student loans, you name it. It happens. Filing separately may preserve a spouse’s right to claim a refund (yes, you can file some extra papers to achieve the same goal but that’s an awful lot of work).
- Medical or Other Expenses. Occasionally one spouse has significant medical or other expenses but little income. Since medical expenses must meet that 7.5% floor before you can deduct them, joint filers may have a hard time meeting that threshold. However, a taxpayer filing separately with a relatively low income can hit the floor much more quickly. Ditto for miscellaneous expenses subject to the 2% floor. Keep in mind, though, that your spouse has to itemize if you do, so this only works if there are enough combined deductions between the both of you.
- Money. Sometimes, the numbers just work out better. And why pay more than you have to?
So there you go. There is no rule that says, “Thou shalt elect married filing jointly.” Sometimes it makes sense to elect married filing separate. Sometimes. Run the numbers – or discuss with your tax pro – to see if it makes sense for you.
*Caveat/Disclaimer/Admitting that I don’t understand our friends out west: keep in mind that there are some particularly kooky rules (okay, that’s my description, not the IRS’) if you live in a community property state. Be sure to consult with your tax professional for details.
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