You and your spouse are partners in life, but should you stick together when it comes to your taxes?
Lake Forest CPA Jerrold Jacks says that in the vast majority of cases, it is financially advantageous for married couples to file joint tax returns.
“It provides for a lower tax rate,” Jacks says. “You are actually paying almost a penalty tax rate when you are married filing separately.”
He says married Illinois couples that elect to file separate tax returns can expect to pay Uncle Sam about 6 percent more.
One of the reasons married couples filing separately tend to pay higher taxes is because they miss out on certain credits and deductions. Glenview CPA Veronica Katranis says the child and dependent care, earned income, adoption, education and college tuition credits—as well as the student loan interest deduction—cannot be claimed by married couples filing separately.
All that said, in some cases it makes sense for married couples to file separately. For instance, when one spouse has incurred significant medical bills, Katranis says to consider separate returns. She says you can take a medical expense deduction if out-of-pocket costs exceed 10 percent of your adjusted gross income.
“If you make $100,000 [combined], your medical expenses would have to get over $10,000 in order to take that deduction,” Katranis says. “But if you file separately [and therefore only count your own income], the hurdle would be lower.”
Jacks says another scenario in which couples may want to consider filing separate returns is if one spouse is the beneficiary of a trust in a tax-free state like Florida, Nevada or Texas. Filing jointly as Illinois residents would trigger state taxes on that income. However, Jacks says, you can opt to file jointly for federal purposes and as married filing separately for Illinois returns.
In rare cases, even if filing jointly yields a lower tax bill, Katranis says it could be in one or both spouses’ best interest to file separately. For instance, she says couples in the process of divorcing sometimes can’t get along well enough to complete a joint return. Or, she says, if you suspect your spouse is engaging in unethical financial behavior, you can protect yourself by filing your own return.
“You both are liable for each other’s taxes [when you file jointly],” she says. “If you think your spouse is taking risky tax deductions, it’s best to file separately.”
A trustworthy accountant can easily help you determine whether filing jointly or separately makes the most sense for your marriage. Katranis says it’s usually as easy as checking a box in a tax software program. It’s a good idea to review your filing status every year, especially after major life events like starting a new business, having a baby or sending a child off to college.
