| Every married couple has to make the yearly financial decision of whether to file a joint or separate federal income tax return. For most people, the answer is like a knee-jerk reaction - joint, of course. And for most people, this is the correct answer. Filing a joint return is most beneficial when there is a substantial difference in the incomes of the spouses. Because the incomes of both spouses are combined in a joint return, it allows some of the income of higher earning spouse to be taxed at the lower marginal rate available to the joint filers, resulting in tax savings.
Even if only one spouse has income, it is usually advantageous to file jointly because of the higher basic standard deduction built into the joint filing structure. Taxpayers whose incomes trigger the imposition of the alternative minimum tax may also benefit from filing jointly. By filing a joint return, the taxpayers are allowed higher exemption and phase-out amounts, permitting larger amounts of preferential income to be sheltered.
Certain tax credits are not available unless taxpayers file joint tax returns. These tax reductions include elderly and permanent disability credits, child and dependent care credits, earned income credits, and education credits. Thus, even if filing a joint return results in a higher pre-credit tax than separate returns, it still might be financially advantageous to file a joint return after taking the credits into consideration.
Advantages of Filing Separately
However, there are circumstances under which spouses will save money by filing separate tax returns. If one spouse has high medical expenses, these expenses might exceed the percentage of his or her own adjusted gross income needed to qualify as a deduction, while the percentage floor might not have been reached if the incomes of the two spouses were combined in a joint return.
The same theory applies to one spouse who has substantial unreimbursed employee business or investment expenses. When measured against that spouse's own income, these expenses might exceed the adjusted income floor, permitting a deduction. In addition, a casualty loss that is not higher than the required 10 percent of jointly calculated adjusted gross income required for a deduction might very well exceed 10 percent of one spouse's income, again permitting a deduction.
In some states, income taxation is lower for spouses filing separately. However, many of those states require the spouses to file separate federal income tax returns to quality for the state's beneficial treatment of the separate filing status.
The only way to know for sure whether filing jointly or separately saves money for a couple is to calculate both federal and state income tax returns both ways and to compare the results. In this age of computerized tax preparation, this is certainly not a heavy burden in order to legally pay less taxes.
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