While the rules normally favor joint tax returns, experts say there are some situations where filing separately pays off. Every year, married couples have the option of filing their taxes together or separately.
While “married filing jointly” refers to a combined return, “married filing separately” means you and your spouse each file separate returns with your own income, credits, and deductions.
IRS Encourages Couples To File Jointly
Although the IRS generally encourages most couples to file jointly, there may be rare cases when filing separately may bring more significant benefits.
In 2022, the standard deduction for married couples filing jointly was $25,900, while those filing separately received only $12,950. Joint filers typically have greater income thresholds for certain tax advantages, such as the IRA contribution deduction.
They may also be eligible for the Earned Income Tax Credit, the American Opportunity and Lifetime Learning Education Tax Credits, the Exclusion or credit for Adoption Expenses, and the Child and Dependent Care Tax Credit.
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Which Is Better: Joint Or Separate Returns?
Filing separately, on the other hand, may be advantageous for couples who have significant out-of-pocket medical expenses. If you and your spouse have a high AGI, it may be difficult to claim most of your expenses because the IRS only allows you to deduct charges that exceed 7.5% of your AGI.
Separate returns in such circumstances may allow you to claim more of your available medical deductions by applying the threshold to only one of your incomes.
Separate tax returns, on the other hand, may result in more tax, and separate filers are normally limited to a lesser IRA contribution deduction. They also cannot deduct student loan interest, and the capital loss deduction maximum is $1,500 when filing separately, rather than $3,000 when filing jointly.
The best way to decide which status to use is to prepare the tax return both ways and compare the net refund or balance due from each option. If you utilize tax preparation software, it can calculate the tax savings for you and recommend the best filing status.
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