Married Filing Separately rules

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Published at : 18 Oct 2020
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If you’re married, you get to make many decisions in life. One of them is with regards to your taxes. Should you file jointly or separately? While most people choose the standard Married Filing Jointly (MFJ) route, there are a few instances when filing taxes separately makes sense.

The IRS actually prefers married filing jointly tax returns. There are tax credits that married filing jointly taxpayers are eligible for that married filing separately couples don’t get to claim. The tax credits that married filing separately taxpayers lose are:
Child Tax Credit
Dependent Care Tax Credit
Education Tax Credits (American Opportunity or Lifetime Learning Tax Credit)
Earned Income Tax Credit

In addition to not being eligible for these credits, there is one other important consideration. When filing separately, each taxpayer must choose the same option with regards to the standard deduction or itemized deductions. Said another way, if one spouse chooses the standard deduction, the other has to choose the standard deduction. If one chooses to itemize, the other has to itemize deductions.

This can be beneficial. For example, if one spouse has a large amount of medical expenses with a lower gross income. Medical expenses apply towards the itemizing limit if they are above 10% of adjusted gross income. Therefore, if one spouse has a relatively low adjusted gross income and high medical expenses, then that spouse would be able to use the medical expenses to increase the deduction. The other spouse would also have to itemize, and try to maximize the portion of state and local taxes (SALT), mortgage interest, and charitable contributions that he or she claims in order to maximize the household deduction.

There are also rare instances when spouses live and work in different states. Due to various state laws, it can be beneficial to file separately to save on state income taxes.

Many individuals also have student loans that they are repaying. Many student loans have income-based repayment terms. This means that if your income is higher, you pay more towards your student loans. Again, if there is a significant income difference, it may make sense to file separately so that the lower income spouse can make lower student loan repayments.

And lastly, if one spouse has prior or current tax liability and the other spouse is due a refund, married filing jointly may protect the spouse against the liabilities of the other.

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