What Happens If You File Separate Federal Tax Returns When Married?

by Mike Parker

    Most married couples file a joint tax return, and with good reason. You can file a joint return even if one spouse did not have any income. You get to combine both of your incomes and deductions, and in most cases your tax obligation is lower than it would be if you filed separate returns. You lose a number of benefits by filing separately, but under certain circumstances it makes sense to file separate returns.

    When you file a joint federal income tax return, you both become individually liable for paying those taxes, even if only one spouse had income. This could be a problem if you don't agree with the way your spouse is figuring the taxes. For example, if your spouse claims deductions that are not supported by the facts, once you sign the return you are just as liable as your spouse for any taxes, penalties or fee assessed by the IRS. If you filed separate returns, you would only be responsible for your own tax liability.

    You lose a number of tax benefits when you file separate returns. If you file separately, you typically can't claim the credit for child and dependent care expenses. You lose the ability to to claim the earned income credit. You lose educational tax benefits, such as the right to exclude interest income from U.S. savings bonds used for higher education costs. Your deduction for investment losses is cut in half, and the income level for receiving the child tax credit is reduced by half.

    When you file your federal income tax return using the married filing separately filing status, you still have the option of claiming the standard deduction or itemizing -- but with one catch. Both spouses have to file using the same method. If your spouse itemizes her deductions on her return, you must also itemize your deductions.

    Bad circumstances are certainly a valid reason for filing separate returns. Filing separate returns is an appropriate decision if your marriage is shaky and you don't feel it will last, or if you are concerned that your spouse is involved in illegal or unethical tax practices. But there are also reasons for couples in solid relationships to file separate returns. If both spouses have income, but one has significant itemized deductions, such as medical expenses or unreimbursed employee business expenses, that rely on meeting thresholds based on adjusted gross income, it is easier to reach the thresholds if you file separate returns.

    About the Author

    Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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