You and your partner probably didn’t get married to save on taxes, but there are a number of credits and deductions that come with the territory.
Married couples have the ability to choose between filing jointly or separately on federal income tax returns. Depending on your specific circumstances, being married can actually help you and your spouse save a good chunk of cash.
And while there are many incentives for filing together — and, in fact, the IRS strongly encourages couples to file joint tax returns by offering several tax breaks to those who do so — there are also some circumstances under which filing separately might make more sense.
We chatted with Brittany Turner, CPA, the founder of Countless, a New York City–based accounting firm for creatives. Brittany demystified the sometimes-confusing world of filing taxes as a married person, including when it makes more sense to file jointly or separately.
Perks of filing jointly
Marriage comes with a number of different tax benefits, including the ability for a partner to be a ‘tax shelter’ in the event that one spouse has a business that is losing money. If you’re married and unemployed, you can still contribute to an individual retirement account (IRA).
Couples can also take advantage of earned income tax credits, lifetime learning education tax credits, exclusion or credit for adoption expenses, and more. For example, in 2018, married, filing-jointly taxpayers received a $24,000 standard deduction, compared to just $12,000 for those filing separately.
Perhaps the most crucial aspect of filing jointly is the fact that joint filers generally have higher income thresholds for their taxes and deductions, meaning that they can earn more and still qualify for a number of different tax breaks. This is an especially pronounced perk if one partner is earning significantly more than the other, Turner says.
"There’s a marriage benefit when one person makes significantly more money than the other, and a marriage penalty when both people make the same salaries — which goes back to whole ‘the woman should be home not working’ argument," she says. "If one person is unemployed or makes drastically more, they’re going to save a lot of money by filing together."
Perks of filing separately
If both partners are making roughly the same amount, Turner says, they may not save by filing jointly. "There are a lot of different variables," she says. For example, if one spouse has massive student loan debt and makes significantly less than their spouse, it may be a good idea to file separately.
These circumstances may also apply to couples who are dealing with medical expenses. Beginning January 1, 2019, the IRS only allows you to deduct medical costs that exceed 10% of your adjusted gross income, so filing separate returns can be beneficial because you can claim more of these deductions by applying it to both partners’ incomes.
Though it may mean some extra legwork, Turner says the best way to decide whether you and your spouse should file jointly or separately is to do some calculations beforehand. "Start by putting all of your information somewhere like Turbotax," she says. But, she adds, don’t actually file yet. "See what [the return] looks like, then go back and take out one person’s information and update it again. See which way makes the most sense."
Turner adds that there are no rules that say you must file the same way each year. If you and your spouse’s circumstances have changed since you last did your taxes, you can file differently this year. "You can go back and forth depending on what your situation is," Turner adds.
Similarly, Turner says there are many online resources that can help you to find out if you’re going to get a tax penalty or tax bonus depending on your financial circumstances. "There are benefits when one person is working and the other isn’t or when spouses incomes are drastically different," Turner says. Making sure to file in the right way could mean a difference in how much you owe — or could potentially get back. "It could be a significant amount of money," she says.
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Source: Refinery29 – Ludmila Leiva