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Here's When You Should File Separately

By Mark Cussen – May 14, 2017 at 12:21PM

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In most cases, married couples should file jointly in order to minimize their tax bill, but in others, filing separately is smarter -- or even necessary.

For the vast majority of married taxpayers, filing jointly is almost always the best option, but there are times when one spouse may wish to file a separate return. In this case, they will have to use the "married filing separately" filing status. Unfortunately, this is by far the least advantageous filing status in the tax code, and it is usually reserved for extenuating circumstances -- perhaps the couple is separating and no longer wants to share finances, or maybe one spouse is committing some form of tax fraud, and the other wants nothing to do with it.

That said, there is one situation in which filing separately can net a couple a bigger refund than they would get if they filed jointly. Read on to learn whether this filing status could protect more of your money from the tax man.

First know the downsides

The "married filing separately" status is the worst in the tax code for several reasons. To start with, this filing status does not allow the filer to claim any of the following credits or deductions:

  • Earned Income Credit
  • Child Tax Credit
  • Child and Dependent Care Credit
  • Elderly and Disabled Credit
  • All deductions and credits of any kind relating to education
  • AGI phaseout threshold of $0-$10,000 for traditional IRA deductibility
Form 1040

Image source: Getty Images.

Another major disadvantage of filing separately is that if one spouse itemizes deductions, the other spouse is required to do so as well -- even if the other spouse's itemized deductions are less than the standard deduction. For example, if one spouse has $20,000 of itemized deductions and the other spouse only has $3,000 worth of itemized deductions, then the second spouse can only take a deduction of $3,000 instead of the standard deduction. For all of these reasons, this filing status is seldom used, and filers will only use it when circumstances force them to do so.

When you should file separately

As mentioned previously, there is one instance in which it can make sense for even a happily married couple to file separately. This occurs when a couple has no children and one spouse earns a great deal more than the other, and the lower-earning spouse has sizable itemized deductions.

For example, a couple with a wife who works as a corporate executive making $200,000 a year and a husband who makes $40,000 a year as a teacher would normally file jointly. But this year, the husband incurs $15,000 in medical expenses for cancer treatments. The IRS only allows taxpayers to deduct unreimbursed medical expenses in excess of 10% of adjusted gross income. If the couple were to file jointly, then this threshold would be $24,000 (10% of their combined income of $240,000), thus making the entire expense nondeductible. But if the husband were to file separately, then the threshold would only be $4,000, allowing him to deduct $11,000 of expenses on his return.

The wife would have to itemize as well, but if the couple normally itemizes anyway, then there is no real disadvantage to doing this. Of course, the couple will probably still be better off filing jointly if they have to forfeit other credits such as one of the educational credits. In cases like that, it may be best to prepare three separate tax returns and compare the net results of a joint return versus separate returns.

Filing separately is almost always disadvantageous for married couples, but there are instances in which it's called for, like when the partners are separating. However, if there is a major difference between your income and your spouse's income, then you should investigate whether filing separately and itemizing your deductions would save you more money than filing jointly. Check out the IRS website for more information on filing separately.

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