Updated January 12, 2021
Virtually all married couples file their taxes jointly for a simple reason – it’s usually cheaper than filing them separately. However, as with any accepted rule, there are exceptions.
Here are 6 cases then where it may be more beneficial to file single.
1. Income-based Student Loan Payments – Income-based student loan payments, set by one’s adjusted gross income, are directly affected by your tax returns. Consequently, how you file your return directly affects individual payment size. Once a couple files their returns separately, the amounts are assessed on the borrower’s income alone rather than the couple’s combined income. This action significantly readjusts and lowers the installment amount size. While the IRS eliminates some tax breaks for couples who separately file returns, such as the student loan interest deduction, many with an outstanding loan still do it to reduce those monthly payments as much as possible.
2. Significant Medical Expenses – Usually, medical expenses that surpass 10% of your adjustable gross income are deductible. In theory then, lowering your total income will reduce the benchmark you need to meet to deduct expenses. Again, filing as single rather than jointly will reduce the income level. For spouses with major health issues who make less than their significant others, this reduction makes a difference.
3. Your Spouse Already Owes the IRS Money – If your partner brings an overdue tax debt into the relationship, then filing separately can preserve any refund you could receive on your return from being applied to said debt. While possible, most couples choose to file still jointly in order to help reduce each other’s burden.
4. If You Are Both High Earners – For the 2015 tax season, the IRS has limited joint filer itemized deductions for couples with a combined AGI (adjusted gross income) over $309,900. If both spouses are high earners, then your total combined income could disqualify you from otherwise available deductions. In this case, filing separately makes sense. However, going down this route requires both filers to itemize, as well as figure out which spouse gets certain deductions and who gets the others. It can be a time-consuming process but still helpful come tax time.
5. Living in a Non-Community Property State – Separate filings may not be possible if you live in the following states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. The reason being that these are all community property states; what that means is any income either partner equally earns belongs to both spouses. Couples filing separately in these locations must report half of the combined income both spouses made. Unfortunately, this eliminates many of the advantages sought out by filing separately. However, if you live in a state not listed above, then this scenario does not apply.
6. Pending Divorce or Spousal Mistrust – Finally, if you and your spouse are divorcing or are mistrustful of each other regarding tax issues’ then separately filing your returns is a reasonable precaution. This decision is important to make because once a joint return is signed and filed both partners are liable. If one person has outstanding debt hidden from the other, once that return is filed both partners now share the burden. The IRS can offer relief for an innocent spouse, but the process to prove it can be difficult.
Consider these factors when you or your spouse are figuring out whether to file jointly or not moving forward and remember to weigh your options carefully before signing the filing. If you have other tax questions, don’t hesitate to contact our tax department today for help; we work with thousands of clients making sure their taxes are taken care of properly. We can do the same for you without a problem.
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