Tax planning for couples can add complexity to an already complicated process.
Here’s a vow you won’t hear at any wedding ceremony: I pledge to always file taxes jointly with my spouse.
Besides being an unromantic way to begin married life, there are solid financial reasons why couples might decide to maintain their independence come tax-time. But deciding whether to unite on a single tax return requires a close examination of a couple’s unique financial circumstances.
“When dealing with taxes, the facts are always different for every couple, so it’s important to review each couple’s facts and circumstances to make an accurate assessment if married filing jointly or separate is the best strategy,” says Andrew Poulos, founder of Georgia-based Poulos Accounting & Consulting, Inc. “There are situations where filing married separately isn’t the best financial option, but other factors cause a couple to file married separately.”
Start With the Assumption That Filing Jointly Is Best
One way to start puzzling through this question is to start with the fact that, for most couples, filing jointly tends to be the most financially advantageous approach. “The majority of couples benefit more by filing married jointly,” says Poulos.
In part, this is because it’s just simpler to file one return rather than two. It’s also because there is no financial advantage to claiming two individual standard deductions allowed by the Internal Revenue Service (IRS)—which is the automatic decrease in your taxable income without itemizing specific deductions—rather than the single deduction for married couples filing jointly. For example, for the 2023 tax year married couples filing jointly can claim a standard deduction of $27,700, which is exactly the same deduction two spouses filing separately can claim.
As a married couple filing jointly, you also are eligible to claim tax deductions that are not available to spouses filing individual returns. For example, joint filers can seek tax credits not available to couples filing separately, including the Earned Income Tax Credit, the Child and Dependent Care Tax Credit and the American Opportunity and Lifetime Learning Education Tax Credits.
“Filing married separately can yield fewer tax benefits, such as being limited to a smaller IRA contribution deduction, not being able to take a deduction for student loan interest and the capital loss deduction limit is limited to $1,500 versus $3,000 when it’s a married joint tax return,” says Poulos.
Itemize Deductions? Take a Closer Look at Filing Separately
There are circumstances when it can be financially advantageous for married couples to file separately. It’s primarily the case when you’re planning to itemize deductions rather than claim the standard deduction.
Keep in mind that married couples filing separately both must file using the same method. In other words, if one spouse itemizes their deductions, the other spouse must as well, even if they aren’t submitting a single joint tax return.
So, when does it make sense to take a closer look at filing separate returns? One reason is if one spouse comes to the marriage carrying a debt to repay to the IRS. If you are married and decide to file jointly, that means the spouse who didn’t owe the IRS will instantly take on that liability—a debt they may prefer not to take on. For couples about to get married, being transparent about debts establishes a good foundation for financial communication throughout a marriage.
Reasons to file separately include when one spouse has high medical expenses. The IRS allows for the deduction of medical and dental expenses if they exceed 7.5% of your adjusted gross income. If one spouse has a relatively low income and high medical expenses, it may make sense to file separately. “If they file separately, the spouse may benefit by claiming the medical expenses versus if they file married jointly and not being able to claim the expenses because they may not be able to exceed the threshold due to higher income,” says Poulos.
Another reason to file separate returns: To better manage student loan repayments. Some student loan repayments are based on a person’s income. Couples may want to keep those monthly debt repayments as low as possible and filing separately can help.
Some couples also see value in keeping their finances separate. It’s not a matter of anticipating a troubled marriage or divorce. Rather, it’s about maintaining independence and flexibility around spending and saving and investing while also working together to reach common financial goals. When that is the objective, filing separately can be an attractive option.
Three Things to Do
- Review our comprehensive tax checklist to ensure you are prepared for next year’s filing.
- Learn how to make discussions about finances easier with these tips for planning a money-talk date night.
- Visit the Regions Tax Center.
