Marriage is all about teamwork: two people who pledge to stick together for better or worse, richer or poorer, and in sickness and in health. And although some exceptions do apply, there’s no better practical example of this vow than a married couple jointly filing their annual income taxes.
Of course, like all things in a good marriage, your tax filing choices should be based on careful consideration. With that in mind, let’s look at all the pros and cons of joint filing before you decide what’s best for you and your spouse.
Why Married Couples Should Jointly File Their Taxes
There are many advantages to jointly filing your tax returns with your spouse, the first of which is that joint filers receive a major deduction each year. They are allowed two exemptions from their income and qualify for several tax credits, including:
- Earned Income Tax Credit (EITC): The EITC is for filers between the ages of 25 and 65 with low to moderate incomes. The maximum credit for married couples with three or more children in 2016 was $6,269, and the average credit was $2,455.
- American Opportunity Tax Credit (AOTC): Formerly known as the Hope scholarship credit, the AOTC could provide reimbursement for tuition, course materials, and some fees related to the first four years of post-secondary education for either you or your spouse. The tax credit can cover as much as $2,500 of relevant costs, and 40% of that ($1,000) is refundable — meaning you can receive the credit as a refund if you don’t end up owing any income taxes.
- Lifetime Learning Credit (LLC): Like the American Opportunity Tax Credit, the Lifetime Learning Credit is a tax credit that helps cover certain costs related to undergraduate, graduate, and professional degree courses. Unlike the AOTC, there is no limit to the number of years filers can claim the credit, which is worth a maximum of $2,000 per return. This credit can potentially be claimed by eligible filers, their spouses, or their dependents.
- Adoption Tax Credit: Spouses who choose to adopt a child could be eligible to receive reimbursements or refunds for expenses directly related to the adoption process through the Adoption Tax Credit. The credit includes costs related to the legal adoption process, home studies, and travel expenses, among others. To claim this credit, you must document all eligible expenses on a Form 8839 Qualified Adoption Expenses. The maximum credit is $13,460 per child.
- Child and Dependent Care Tax Credit: Married spouses with joint earned income could be eligible for this tax credit if they paid a non-dependent or spouse to provide care for a “qualifying person” — a dependent child who was under the age of 13 when the child care was provided — while they worked, searched for employment, attended school, or if they were disabled at the time the care was provided.
In addition, married couples who file separately will likely be eligible for fewer tax considerations and may be subject to a higher tax rate. These couples are also ineligible for several tax deductions or credits (such as those related to student loan interest or tuition) that could significantly lower their liability or even result in a better refund.
For instance, in 2016, married taxpayers who filed separately received a standard deduction of $6,300 while those who filed jointly received a $12,600 standard deduction. Of course, if both spouses work full-time and would take full advantage of the individual deductions, then the deductions work out the same either way. However, if your spouse doesn’t work or has limited income and wouldn’t otherwise take advantage of the full $6,300 deduction on their individual return, then getting the equivalent of two standard deductions on your joint return can be a big advantage.
The Disadvantages of Filing Jointly
Although it’s rare, there might be some occasions where filing separately could result in a more favorable outcome for one or possibly both spouses. For instance, if you suspect that your spouse could be omitting or willfully manipulating the information on their taxes, you might want to file separately to avoid responsibility for any inaccuracies or tax liabilities that result from their behavior. Married filing separately (MFS) might also be the best option if you or your spouse may have a liability that you don’t truly share.
More commonly, spouses choose to file separately to take advantage of substantial itemized deductions that are limited by adjusted gross income (AGI). These deductions might include medical expenses, charitable donations, personal casualty losses, investment expenses, and other miscellaneous expenses.
For instance, the IRS limits deductions on out-of-pocket medical expenses to those that exceed 10% of a household’s adjusted gross income (7.5% for individuals aged 65 and older). So, if you and your spouse have a sizable combined income, it could be difficult to deduct major medical expenses from your income taxes. By filing separately, you could potentially claim more deductions (since they’ll be compared against 10% of only one of your incomes instead of 10% of your combined income).
Contact S.H. Block Tax Services for Help With All Your Tax Needs
In our experience, we’ve found that sound financial planning can go a long way toward marital bliss. If you are married or considering getting married, you and your spouse should discuss the financial implications of those sweet and sincere vows, especially as they relate to your tax filing status.
For additional help with tax preparation or resolving a tax liability, please contact S.H. Block Tax Services directly by completing this simple form or calling (410) 793-1231. We have helped thousands of couples get the most out of their tax returns, and we would love the chance to do the same for you!
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.