Posted on: 15 September 2016Share
Whether you file jointly or separately, filing for taxes means a lot of paperwork and maybe a few headaches along the way, so you'll want to make sure you get the most out of it. One way to do this is to calculate whether you'll get a higher tax return with a joint filing or two independent filings. Here are some questions to ask yourselves when deciding which is the best way to go this year.
1. Do you have similar incomes?
If your incomes are comparable, filing jointly may be the way to go. However, if you're in widely disparate tax brackets, things may not be so simple. The spouse who earns less may not want to be in a higher tax bracket, which can happen when you file jointly. However, it's also true that couples who file jointly can pay lower taxes on more of their overall income, whereas married couples who file separately tend to pay more taxes than singles.
2. Is one of you self-employed?
Self-employment can get very complicated very quickly when tax time comes. Some reasons self-employment may make you want to file separately include:
- Quarterly taxes: If you've underestimated the amount of quarterly taxes you owe, filing jointly versus separately can make a difference to the penalties you'll pay.
- Self-employment tax: If you're self-employed, you have to pay for your own Social Security and your spouse may not want to help.
If you're not sure whether filing jointly or separately will be most advantageous, try a simulator that will estimate your potential results from each type of filing. It'll take an investment of time, but it may save you a lot of money.
3. Do you qualify for large deductions?
As you'd expect, itemized deductions can make everything less simple. This is one of those situations where being in different tax brackets counts. For example, in some cases, you may qualify for a deduction if you file separately that you wouldn't qualify for when filing jointly. If this is a large enough deduction, it may overpower the other benefits of filing jointly.
4. Do you qualify for married-only credits?
Some benefits are only available to married couples who file together. These include things like the Child and Dependent Care tax credit (only applicable if you have dependents), the American Opportunity tax credit (only applicable if one of you attends school), and so on. If you do qualify for these credits, they can give you a big boost during tax season, which is a great reason to file jointly.
5. Do you trust your spouse?
If you suspect your spouse may be committing tax fraud in any way, such as by overestimating deductions or by underreporting income, it may be best to file your return separately to protect yourself from liability. If your spouse is audited and has to pay additional money, you'll both be equally responsible for it. So if your conscience is bothering you or you simply don't want to have to pay your spouse's debts, filing on your own when questionable tax practices are on the table may be the best choice.
For more information, contact Mary Anne Bohlinger CPA LLC or a similar accounting professional.