How Should You File Your Taxes if You're Married?

Should you choose married filing jointly or married filing separately? If I'm a married individual, the IRS forces me to choose one of these 2 filing statuses. I don't get to be a head of household. I don't get to be single. One or the other. So what do they define as being married? If by December 31st, I have a spouse. I'm still married or am now married, I get to take the whole tax year as either jointly or separately. If I am living apart from my spouse but not legally separated, then I only get to choose between married filing jointly or married filing separately. If my spouse dies during the year, I'm going to choose between jointly or separately. And then if I live in a common-law marriage state and I consider this individual my spouse, I need to choose between jointly or separately. So one of the main reasons why this is a conversation is because the IRS has provided 2 separate tax brackets for the status and different tax rules. So let's go over the bad reason first. As a married filing jointly status, I can make twice as much money and pay the same tax rate As someone who made half that amount married filing separately. So as an example, if I make $50,000, even with the difference, it's still about a $500 tax savings. But then it starts to get— the difference becomes even more dramatic. At $60,000, it's like a $1,500 tax savings. At $100,000, it's almost a $5,000 tax savings. At half a million dollars, it's close to $34,000 in tax savings. Just from the tax status alone. So that's one of the main reasons why married filing jointly is better for most people. In addition, if I do married filing separately, the IRS says, well, there's some deductions and credits you don't get anymore. Why? I don't know why they're picking on people who are married but want to file separate, but they are. So you don't get a dependent care credit, You don't get education tax credits, you don't get to take student loan interest. If you qualify for the Earned Income Credit, you don't get it married filing separately. And if you qualify for that credit, that's a big credit, that's a big payout. No adoption tax credits. And then if I have stock losses, normally I get a $3,000 limitation that I can at least take $3,000 of my loss each year. Married filing separately, I only get to take $1,500. So, I'm limited on deductions and credits. That's one of the other reasons why separately doesn't make sense. Also, and you can look at our other videos to go over, like, if this doesn't make sense, but standard deduction versus itemized. Every taxpayer can choose to take a standard deduction, which is currently like $14,600 per person as a standard deduction, or they can itemize their deductions. If those are higher than the standard deduction, that's how most people look at it. So if I pay charitable contributions, I have mortgage interest, I have property tax, maybe I have some medical expenses, those are itemized deductions. If I go married filing separately, whatever my spouse claims, that's the status I have to take. So if they do itemized deductions, I have to also do itemized deductions. And if all the charitable contributions and mortgage interest are in my spouse's name, they're going to get an actual deduction, which is going to lower their taxable income, and I'm going to have zero to claim or some much smaller amount, likely smaller than the $14,600 I could get just by claiming the standard deduction, which everybody could take. So That's a big factor in determining whether you should go married filing jointly or married filing separately, because you're talking about a reduction of your taxes by like $28,000. So that's kind of a big deal. So when does married filing separately actually make sense? Because it is a status, would it ever make sense? Experts say, experts say, if you have high medical expenses, then you should look at married filing separately. I'm going to push back on that one. I don't actually agree with it for the reason I just explained. If I— medical expenses are an itemized deduction. So the idea is the spouse who has lower income, let's have them claim the medical expenses because they'll get to claim more of it. And I don't want to go into all the technicality of all that. It's just, this is a video for married filing jointly versus filing separately. But the challenge is if I do that, The other person who maybe now has more income has to itemize as well, and are they going to have enough itemized deductions to offset what we're doing fancy with the medical expenses? I don't think for most people that makes sense. They also say, experts also say, that if you have about the same amount of income, you should consider doing married filing separately. I've run the numbers, this is absolutely not true. You basically pay the same tax. If you're making the same amount of income, you're not really going to save anything by going married filing separately. Okay, here's some other reasons. If you don't trust your spouse, this is a valid reason and it's a thing. If you trust your spouse, that's awesome. We have had clients over the years, they don't. They maybe think their spouse is doing something weird with their money, they think they're doing something wrong with their taxes, and so married filing separately does separate the risk. So if your spouse is doing something crazy that you think is going to get them in trouble and you don't want any part of it, you would choose married filing separately. Now, if your spouse has a past tax debt that they're still paying, what that means is that anytime you get a refund, the IRS is going to take that refund. So if you don't want a refund that would be owed to you going to the IRS because your spouse owes money, then you would consider doing married filing separately. But even in that scenario, there are things called injured spouse relief and innocent spouse relief that likely could be a better option. And then the other main reason we see is The spouses just are unwilling to file together, likely in this scenario because they're going through a divorce. So really, those are the most valid reasons we've seen. You don't trust your spouse, or you're going through a divorce and you're just unwilling to file together. Those are pretty much the 2 main reasons why people would file separately. Most of the other reasons would lean you to say married filing jointly is going to give you the better tax outcome. For our clients, if they ask us, we actually will do the calculation for them when we're preparing their return. We'll tell them exactly how much they save by going married filing separately. And so, very important that you consult with your tax accountant if this is a question or debate that you have with your spouse on which status to file for. But there you go, married filing jointly versus married filing separately. In most cases, I'm going to say married filing jointly wins. But super important to consult with a tax pro so that you make the right decision for yourself. Remember, the IRS does not like you. If you were on fire, they wouldn't even waste time putting you out. They'd actually probably get marshmallows and start roasting s'mores. Sorry to be the bearer of bad news, but we got your back here at Insight Tax. Thanks for watching.