It is a really bad idea to file taxes at the last minute. The decision ahead will make the process faster. It is best to plan and take specific actions before tax filing. For example, married couples must decide whether to file jointly or separately. In this case, filing a joint return is the best because of the numerous tax breaks. However, you can seek the help of a tax adviser to decide which is the most brilliant move for your financial goals.
PROS
Filing a joint tax return protects you from legal responsibilities. However, singing it proves you are responsible for your partner's shenanigans toward tax returns. Although it is uncommon for a person to get married to a tax cheater, it is worth knowing.
If you feel less convenient signing the tax return, you can file separately to avoid the hook from the IRS. Otherwise, you'll be slapped with fines and penalties if the IRS finds any incriminating item on the return.
Filing separately is the best way to go about student loan repayment. The United States has recorded over 70% of students graduating from school and owing student loans. The staggering conclusion gives an average debt load of over $30,000. Thus, it is challenging for graduates without a job to pay back. It is best to result in an income-dependent repayment plan for a short time of relief.
However, it isn't easy to qualify as a married couple. And the option is available to married couples filing separately. In addition, you can qualify for other tax benefits while sacrificing some. Those with kids who use the standard deduction method will be free of the burden.
Your deduction is determined by your adjusted gross income (AGI). It is best to file tax separately if you have unequal AGIs and use the itemizing method of deduction. For example, you can only deduct medical expenses, which are more than 10% of the adjustable gross income. For example, if you and your spouse earn a joint income of $250,000 and file tax jointly, you and your partner must use more than 10% on medical expenses to qualify for the deduction. For example, couples that make $50,000 and $200,000 will need to file separately, resulting in $5,000 to qualify for medical expenses deduction. In essence, filing separately is best for couples earning an unequal income.
AGI allows for other deductions, such as unreimbursed employee expenses, gambling losses, and tax preparation fees. However, you have to be careful because some deductions and credits are not allowed on filing taxes separately.
CONS
Couples who file jointly can contribute to the Roth IRA account. However, married couples filing taxes separately and making under $10,000 do not qualify for the tax-free investment option. In this case, such couples must earn less than $206,000.
According to the IRS, deduction accumulates to lower taxable income but to a specific limit. If you have certain deductions to claim with unequal earnings, it will do you good to file taxes separately using itemizing deduction method to qualify for the full tax breaks. For example, you can take a deduction if you spend more than 7.5% of your AGI on medical expenses. In addition, if you earn unequal income, combining your incomes will deter you from receiving some tax breaks accompanied by the deduction. In such a situation, it is best to file taxes jointly.
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Jim McClaflin, EA, NTPI Fellow, CTRC