FML partner Andrea Harrington recently shared her expertise with CNET in an article about how married couples can determine if they are better off filing jointly or separately. This is a common question, especially for newlyweds, and Andrea uses her 25-plus years of experience to explain why each option makes sense in certain situations.
Andrea is cited first under the subhead “Most married couples file jointly. Should you?” Here is what she had to say:
For most married couples, filing joint tax returns will make the most financial sense. You’ll typically get a bigger refund or a lower tax bill when you file this way, said Andrea Harrington, a CPA at Fiondella, Milone & LaSaracina LLP. If you choose married filing jointly, you’ll have access to more credits and deductions than if you file separately.
Andrea was also asked about when it makes sense to choose “married filing separately.”
You may also choose married filing separately if one spouse earns less income but has higher itemized deductions. This can lower your tax liability, said Harrington. It might also make sense to file separately if one spouse expects a refund and the other expects a tax bill. And if you and your spouse make similar income but could be bumped into a higher tax bracket by filing jointly, then you might opt for this filing status.
Andrea has some extra information and insights to share on what married couples should consider when they decide how to file as we approach Tax Day 2024:
Income and expenses are specifically identified to each spouse for reporting on a separate return for a married filing separately (MFS) designation. Both spouses must use the same methodology for itemized deductions — either standard (which is split in half) or itemized. There are limitations on credits and other tax advantages on a MFS return.
Differences in tax brackets generally result in a higher tax liability for MFS vs married filing jointly (MFJ). Certain credits are not available on a MFS return. Also, the $25,000 loss allowance for active participation in a rental is reduced when filing separately.
Joint return filers, unlike married individuals filing separately, can claim the elderly or permanently disabled credit, child and dependent care credit, the earned income credit, or the educational credits, if they otherwise are eligible.
If one spouse has lower income and higher medical expenses, which are subject to a 7.5% floor on adjusted gross income, filing separately may result in a lower overall tax liability.
A working spouse may contribute to a non-working spouse’s IRA if filing jointly, subject to normal contribution limits. This is not available in a married filing separate scenario.
In the case of divorce or separation, spouses are jointly and severally liable for taxes, interest and penalties when filing a married filing joint return, so special consideration should be given to filing jointly if divorce proceedings are in process but not final at year end.
Changes in credits, brackets and other preference items should be carefully considered when determining filing status and tax liability. More often than not, filing jointly will result in a lower tax bill, but if some of the key items apply, running the numbers on joint versus separate could be warranted.
Another disadvantage to filing separately is a reduced exemption under the alternative minimum tax regime. If one spouse has significant preference items (certain depreciation adjustments, investments in oil and gas, certain gains from stock option exercises), AMT can be triggered when it may not be on a joint return.
