Many married couples choose to file their taxes jointly to take advantage of tax breaks like the Earned Income Tax Credit and the Child and Dependent Care Tax Credit. However, there may be instances where it is more financially beneficial for married couples to file separately.
“In my practice, there’s a couple of instances where I see couples filing separately,” said Alicia Jegeda, CPA and founder of the accounting firm New Gen Financial Planning. “One of those would be if they have very large out-of-pocket medical expenses. Another would be if a taxpayer is on an income-driven student loan repayment plan.”
While some couples may choose to file separately to deduct large expenses, others may need to take this filing option for more concerning personal reasons.
“If there’s financial infidelity in the relationship, one taxpayer may want to file separately,” said Jegede. “There might be potential for unreported income, potential for debts that the taxpayer may not know about. So they would want to make sure … to shield themselves from the liability because joint returns are basically the responsibility of both taxpayers.”
Most of the time, however, it is more financially advisable for couples to file jointly in order to receive helpful tax credits.
“Many of the credits are unavailable to taxpayers who file separately,” Jegede explained. “So, for instance, the Earned Income Tax Credit, the Child and Dependent Care Credit is unavailable. The Social Security Income exclusion is unavailable. The education credits.”
Couples who are weighing the benefits and drawbacks of filing separately can prepare their returns both ways to first see which status will yield a more favorable return before deciding on their filing status.
“Tax preparers usually have systems that will run either option for you, and you can see what’s more beneficial. Usually it’s going to be the joint return,” said Jegede.
Once a couple determines which status benefits them most, they will most likely have to keep that status the same on both a state and federal level.
“Most states require that whatever you file federally, you have to file on your state return,” Jegede said.
Couples can change their filing status year-to-year should they see the advantages of one status outweigh the other.
“There’s no obligation to stay consistent year to year,” according to Jegede. “So if this year is more beneficial to file separately, you can do that. And then next year you can go back to filing jointly.”