Married couples can file federal income tax returns together or separately. The Internal Revenue Service strongly encourages couples to file joint tax returns, extending more tax cuts to those who file jointly. In the vast majority of cases, it is best for couples to file joint returns, but there may be instances where it is preferable to file separate returns.
Essential Advantages of Joint Filing
There are countless benefits to filing a joint tax return with your spouse. The IRS offers joint filers one of the highest standard deductions each year, allowing them to immediately deduct a significant portion of their income.
Couples who file jointly can often qualify for various tax credits, such as:
Lifetime Learning Education and American Opportunity Tax Credits
Child and Dependent Care Tax Credit
Earned Income Tax Credit (EITC)
Exclusion or credit for adoption expenses
Joint filers often receive higher income limits for certain taxes and deductions, which means they can earn more income and benefit from certain tax reductions.
Consequences of filing tax returns separately.
In contrast, couples who file separately receive a small tax return. Separate tax returns can give you a higher tax with a higher tax rate. The standard deduction for separate filers is much lower than that offered to joint filers.
For the 2021 tax year, married taxpayers filing separately will only receive a standard deduction of $12,550 compared to the $25,100 offered to those filing jointly.
If you or your spouse file separately, you will automatically be disqualified from many of the tax credits and deductions listed above.
Additionally, separate filers are generally limited to a lower IRA contribution deduction.
They also cannot deduct the interest on the student loan.
The limit for capital loss deduction is $1,500 each when you file separately instead of $3,000 when filing jointly.
The best strategy to find out if you should file a joint or separate tax return with your spouse is to prepare your taxes both ways. Check your calculations, then note the net refund or balance due for each method.
When can I file separately?
In rare cases, filing a separate tax return can help you save on taxes.
For instance, if you or your spouse have a large amount of medical bills in your pocket, and because the IRS only allows you to deduct the amount of those expenses that exceed 7.5% of adjusted gross income (AGI) for 2021, you can claim the bulk of your expenses if you and your spouse have a high adjusted gross income (AGI).
For instance, if you have $10,000 in medical bills and earn $50,000. This would meet the 7.5% threshold ($10,000 ÷ $50,000 = 20% of your income). Whereas if you earn $135,000 together, it prevents you from claiming these medical expenses ($10,000 ÷ $135,000 = 7.4% of your earnings).
Filing separately in such a situation may be helpful if it allows you to claim multiple medical deductions available by applying the limit to only one of your incomes.
Deciding which filing status to use
The ideal way to find out if you should file jointly with your spouse or separately with your spouse is to prepare your taxes both ways. Check your calculations, then note the net refund or balance due for each method. Also, you can contact a tax professional to help you in deciding which of the filing status is best for you and your spouse.
Summary
For the fiscal year 2021, most couples under 65 who filed jointly receive a standard deduction of $25,100, while couples who filed separately receive a standard deduction of $12,500.
If you are married and file separately, you may need to pay a higher tax rate and pay more taxes.
Joint filers are often granted higher income limits for certain tax exemptions, such as the deduction of IRA contributions.
Separate filing can be an advantage if you have a large amount of medical bills in your pocket. It may be easier to meet the 7.5% adjusted gross income threshold to qualify for medical deductions if you are claiming only one income.
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