When Should My Spouse and I File Separate Tax Returns?
Married couples have the option to file two separate tax returns or one joint return. Most married couples file jointly to get a lower tax rate and claim valuable tax breaks like the child care and college tuition credits not available to spouses who file separate returns. But there are situations where it may pay to file separate returns to take advantage of unequal distribution of income and deductible expenses between husband and wife, or avoid potential tax trouble.
Medical Expenses
If you paid extraordinary unreimbursed medical expenses but your spouse didn’t, you may be able to deduct more of them by filing separately. You can deduct medical expenses that exceed 7.5 percent of your adjusted gross income. When you file jointly, the incomes of you and your spouse are added together, but when you file separately only your income is counted for the 7.5 percent exclusion. If each of you had $50,000 in income and you filed jointly, you deduct medical expenses exceeding $7,500, but if you file separately, you can deduct your medical expenses exceeding $3,750.
Other Expenses
If you had large investment management expenses, unreimbursed business expenses or unreimbursed property casualty losses, your deduction is calculated in a manner similar to medical expenses. You can deduct the unreimbursed investment and business expenses that exceed 2 percent of your adjusted gross income and the unreimbursed casualty losses exceeding 10 percent of your AGI. By filing separately, you reduce the dollar amount of the exclusions and may get to deduct more of these expenses. But while filing separately can give you some bigger deductions, you will lose lucrative tax breaks and pay a higher tax rate. These adverse consequences may negate the larger deductions.
Community Property
If you live in the nine community property states, you won’t be able to take advantage of unequal distribution of income and expenses between spouses by filing separately. The IRS defers to state laws in Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin that require all income and deductible expenses to be split 50/50 between husband and wife. It doesn’t matter which spouse earned the income or paid the deductible expenses.
Owing Money
If your spouse owes child support or unpaid income taxes, you may be better off filing separately. Filing a joint return means you and your spouse are treated as one person, so anything owed by one spouse is automatically owed by the couple. Any refund will be seized by the IRS to cover the unpaid child support and back taxes.
Funny Business
If your spouse was ever audited and is still doing whatever attracted the IRS’ attention back then, you should protect yourself by filing separate returns. Similarly, if your spouse is self-employed and is aggressive in claiming business expense deductions, or if you have misgivings about your spouse’s income-producing activities, file separately. When you file jointly, both spouses are liable if the IRS decides to investigate and finds tax irregularities. If you file separately, you are totally off the hook for your spouse’s tax troubles.
References
Writer Bio
Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.