The Dilemma: Married Filing Jointly vs. Separately
Usually married couples will have the lowest tax liability if they file a joint income tax return, however, this is not always the case. Learn more from BNA Software.
November 17, 2008
Sponsored by BNA Software
by Nancy Faussett, CPA
Married individuals can either file a joint income tax return or, if they choose, may file two separate tax returns. Filing separate tax returns is usually (but not always, as you will see) done to reduce the tax liability. However, if finding the lowest tax liability is your main concern, there are no actual guidelines for determining which filing method you should use. If this is your goal, you need to calculate the tax liability under both scenarios to see which is better. Nonetheless, there are other factors you need to consider.
Note: Although only married taxpayers may file jointly, if the individuals are separated and living apart, they may still file a joint return. However, if a husband and wife are legally separated, they are not considered to be married, and a joint return may not be filed.
Disadvantages of Filing Jointly
At first glance, you would think that married individuals would always want to file a joint return. After all, a joint return is certainly simpler to prepare and the applicable tax rates are the lowest for married filing jointly. However, due to various individual situations, the lowest tax liability may actually result from filing separately. In addition, there may be at least two other disadvantages to filing a joint return:
Itemizing on Separate Returns
If a couple files separately and one spouse itemizes deductions, the other spouse should also itemize as otherwise their standard deduction is zero.
As to which spouse can claim which deduction, the answer depends mostly on whether one lives in a community property state. If qualifying expenses are paid by a spouse with separate funds, then that is the spouse who may claim the deduction for paying them. However, if the expenses were paid with community funds and the couple lives in a community property state, then usually each spouse claims half of the deduction.
Filing Separately Prevents Certain Deductions and Credits
If a married couple decides to file as married filing separately, there are certain deductions and credits that may not be claimed. Taxpayers who are married filing separately can not claim the:
In addition to the above, married taxpayers who file separately:
Change of Filing Status
If married individuals file a joint return, they may not later amend their return to file married, filing separately for that taxable year. However, the reverse is not true. Generally, if either or both spouses file a separate return, a joint return can still be filed as long as:
Miscellaneous, But Important
There are additional issues to be considered when determining the correct filing status for certain taxpayers:
In Summary: What Should You Do?
Usually married couples will have the lowest tax liability if they file a joint income tax return rather than separate returns. However, this is not always the case, and you must prepare the tax return both ways to be absolutely sure this is so. Plus, there are specific situations where it may be better to file separately due to other reasons.
To answer the question of what you as the tax preparer should do, there are two things. First, you need to understand the client’s situation. Make sure that the liability for any income tax, penalties and interest resulting from the return won’t be an issue. Furthermore, determine whether alimony is being paid and be sure to look at what credits the taxpayer may be entitled to claim.
Finally, you can (and, really you must) use income tax planning software that will allow you to prepare the tax return both as married, filing jointly and married, filing separately. Only then can you make the absolute best decision for your client.
Nancy Faussett, CPA, has over 25 years of tax accounting experience. With BNA Software since October 2001, Nancy serves as in-house expert on fixed assets, depreciation, and various areas of corporate and individual income taxation. Author of the Best Depreciation Guide for Best Software (now Sage), Nancy has also been published in Strategic Finance and the ACT Journal. Previously she was vice president of tax preparation for General Business Services and later worked as a depreciation and tax specialist for Best Software.