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When to File Separately if You’re Married

by | Sep 5, 2023 | Tax Planning

when to file separately if youre married

Filing taxes as a married couple is a significant financial decision. While the default option for most couples is to file jointly, there are certain situations where filing separately can be beneficial. In this article, we will explore when it makes sense for married couples to consider filing separately and the potential advantages of doing so. 

Protecting Individual Finances 

One of the primary reasons couples may choose to file separately is to protect their individual financial interests. If one spouse has concerns about the other’s financial situation, such as unpaid taxes, outstanding debts, or a history of financial irresponsibility, filing separately can help shield the responsible spouse from any potential liability. 

Filing separately ensures that each spouse’s income, deductions, and credits are separate, reducing the risk of being held responsible for the other’s financial obligations. This can be especially important if you are not entirely confident in your spouse’s financial stability. 

Reducing the Impact of Student Loan Payments 

Student loan debt can be a significant financial burden, and how you file your taxes as a married couple can impact your student loan payments. When you file jointly, your combined income may result in higher monthly student loan payments due to income-driven repayment plans. 

Filing separately may allow the spouse with student loans to reduce their monthly payment, as only their individual income is considered for calculating the payments. This can free up more money for other financial goals or expenses, providing some financial relief. 

Maximizing Tax Benefits in Specific Situations 

In some cases, filing separately can result in a lower overall tax liability, especially when one spouse has significant deductions or credits. For example, if one spouse has high medical expenses that exceed the adjusted gross income threshold for claiming deductions, filing separately may allow them to maximize these deductions, potentially leading to a lower tax bill. 

Similarly, if one spouse has significant business losses or other deductions that can only be claimed individually, filing separately can be advantageous. It’s essential to consult with a tax professional to determine if this strategy makes sense for your specific situation. 

Reducing the Impact of the Marriage Penalty 

In the U.S. tax code, the so-called “marriage penalty” refers to the situation where a married couple may pay more in taxes than if they were single and filing individually. This can occur when both spouses have relatively high incomes. In such cases, filing separately can sometimes reduce the overall tax burden. 

It’s important to note that the marriage penalty doesn’t affect all couples, and its impact varies depending on individual circumstances. A tax professional can help you determine if filing separately can help mitigate this penalty for your specific situation. 

Community Property State Laws 

The concept of community property is based on the principle that both spouses contribute equally to the marriage, and as such, they should equally share in the assets and debts acquired during the marriage, regardless of which spouse earned or acquired them. This legal framework is in contrast to equitable distribution states, where assets and debts acquired during the marriage may be divided more flexibly based on various factors, including each spouse’s contribution, financial circumstances, and other relevant considerations. 

The following U.S. states are considered community property states: 

  • Arizona 
  • California 
  • Idaho 
  • Louisiana 
  • Nevada 
  • New Mexico 
  • Texas 
  • Washington 
  • Wisconsin 

If you live in one of these community property states, you must report half of all community income as well as all of your separate income on your tax return. You can use IRS Publication 555, Community Property, to determine these calculations. 

Conclusion 

While filing jointly is often the most straightforward option for married couples, there are certain scenarios where filing separately can be beneficial. Whether you want to protect your individual finances, reduce student loan payments, safeguard your assets, maximize specific tax benefits, or address the marriage penalty, it’s essential to carefully consider your unique financial situation and consult with a tax professional to make an informed decision. 

Ultimately, the decision to file separately or jointly should be based on a thorough analysis of your financial circumstances and long-term goals. By understanding when it makes sense to file separately, you can make the most of your tax situation and ensure financial stability for you and your spouse. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations. 

If You Need Tax Help, Contact Us Today for a Free Consultation 

A Newlywed’s Guide to Taxes

by | Feb 9, 2023 | Tax Planning

a newlywed's guide to taxes

If you recently got married, you might have spent a lot of time planning a ceremony, reception, or honeymoon. As a newlywed, have you considered how your new life change will affect your taxes this year? Here are some things you should keep in mind when filing your taxes. 

Name and Address Change 

Before we get to the obvious changes like filing status, one of your first actions should be to report your name change to the Social Security Administration (SSA) if necessary. The name on your tax return must match the one on file with the SSA or else it can cause delays in processing your return or refund. You’ll also want to make sure you update the IRS and USPS of a change in address if paper mail is your preference for correspondence or refund payment.  

Withholding 

While adjusting your tax withholding with your employer is not necessary, it can help avoid any overpayment or underpayment in taxes throughout the year. You can use the IRS Online Withholding Calculator to find out how much you should withhold. Once you determine the best option for you and your spouse, you should submit a new FormW-4 to your employer. 

Tax Bracket 

Getting married could change your tax bracket if you file together since your income is combined with your new spouse’s. Here are the tax brackets for the 2022 tax year: 

Tax Rate  Married Filing Jointly  Married Filing Separately 
10%  $0 -$20,550  $0 – $10,275 
12%  $20,551 – $83,550  $10,276 – $41,775 
22%  $83,551 – $178,150  $41,776 – $89,075 
24%  $178,151 – $340,100  $89,076 – $170,050 
32%  $340,101 – $431,900  $170,151 – $215,950 
35%  $431,901 – $647,850  $215,951 – $323,925 
37%  $647,851 or more  $323,926 or more 

Filing Status 

You might be used to filing single each tax season, but as a newlywed that will no longer be an option. You’ll either file married filing jointly or married filing separately. Most couples will opt for a joint return as it opens access to more tax breaks and sometimes a better tax rate. Every situation is different, so your best bet may be to prepare your tax return both ways to see which has a better outcome.  

Standard Deduction 

Married couples filing jointly can claim one of the largest standard deductions at $25,900 if you are both 65 and under. If you file separately, you can only claim the $12,950 standard deduction. You should note that if one spouse opts to itemize, both of you must itemize, so you should determine which method would result in a lower taxable income. 

Tax Credits and Deductions 

As mentioned, filing separately eliminates eligibility for some tax credits. For example, couples married filing separately may not claim the Earned Income Tax Credit (EITC) or education credits like the American Opportunity Credit or Lifetime Learning Credit. They might be able to claim the Child and Dependent Care Credit if they meet certain requirements. They also cannot deduct student loan interest. On the other hand, married couples filing jointly have extra tax perks to look forward to. For example, if you are not working you cannot contribute to an IRA account if you are single, but you can if you are married and use your spouse’s income. You can also take advantage of flexible spending accounts (FSAs) and lower health care expenses. You can consult with a tax preparer for more tax breaks. 

Tax Help for Newlyweds 

Taxes are sure to be the furthest thing from your mind after getting married, but it’s critical to remember that as long as you are legally married by December 31st, the IRS considers you to be married for the full tax year. The sudden change in rules may be intimidating and brand new to you, but there are always experts who are ready to help. If you need tax help, contact Optima Tax Relief at 800-536-0734 for a free consultation.