If you are married, should you file a joint return with your spouse? Most couples do file a joint return that combines their income and deductions. But before you join that majority, you might want to re-examine your situation. There are instances when filing separately might be best. For example, filing separately could produce tax savings if one spouse has lots of medical expenses and a low income. That’s because the spouse with the medical bills might meet the 7.5% threshold needed to itemize medical costs on a separate return that reports just her income, but not on a joint return reporting all income combined.
If you suspect your spouse is cheating on his taxes, under-reporting income or over-reporting deductions, by filing separately, you will be liable only for the taxes on your own return if the IRS audits and determines additional taxes are due. If you did file a joint return, you still have some protection, since you could claim innocent spouse status, but you might have to show that you didn’t know about your spouse’s schemes to save taxes.
If your marriage is on the rocks, you and your spouse may not agree about how tax refunds should be shared or who should pay any additional taxes due. Filing separate returns can resolve that dispute, with each spouse liable for the taxes on their own return.
If you are living in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin). filing separately might not be beneficial. In community property states, most income and expenses must be combined and reported half on each tax return. That complicates return preparation and requires coordination and sharing tax information. And if errors later are uncovered by the IRS, innocent spouse rules won’t help you, since they only apply to joint returns. See IRS Publication 555, Community Property, for more information.
Married filing separately has other drawbacks and limitations. If one spouse itemizes deductions, so must the other spouse, even if she would be better off claiming the standard deduction. Forget taking special deductions and credits, such as interest on student loans, child and dependent care credit, earned income credit, exclusions for savings bond income used for education, education credits, credit for adoption expenses, and credit for the elderly or disabled. None of these are allowable on separate returns. People who are married filing separately will pay tax on more of their Social Security benefits, can’t do an IRA rollover, and can claim only half the capital losses they could on a joint return.
If you are in doubt about your best filing option, run your tax software both ways, figuring your taxes as both joint and separate filers and use the method that produces the lower tax bill. Chances are that married filing jointly will be your best choice.