As a married couple, you probably share almost everything. But is that such a good idea when it comes to filing taxes? Most couples file their return jointly, combining incomes and sharing deductions. This filing season, same-sex married couples also will decide whether to file one federal 1040 or two forms as married filing separately.
That trend will probably continue, encouraged in large part by tax-law changes during the past few years to ease the marriage penalty. This filing phenomenon tended to show up when working spouses made roughly equal incomes; in many cases, they paid more taxes on their combined return than did unmarried couples filing separate returns as single taxpayers, forcing the married pair to face a tax penalty. Tweaks to the tax brackets have helped ease this problem.
But sometimes it pays for couples to re-examine how they file. There definitely are instances when filing separately might be warranted.
Togetherness or not?
Separate returns could produce tax savings if one spouse has a lot of medical expenses and a low income. By filing separately, the partner with the doctor bills might be more likely to meet the 10 percent of adjusted gross income threshold needed to itemize medical costs. Taxpayers age 65 or older can still use the 7.5 percent threshold through 2016. Only one spouse on a joint return must meet that age to get the lower deduction percentage.
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If one spouse uses questionable tax-filing techniques, the other partner might be wise to insist on separate returns. When both partners sign a joint return, each is legally liable for the tax bill and any issues that might come up later. The Internal Revenue Service does offer innocent spouse protection, but the victimized partner must show he or she was, indeed, unaware of any tax scheme. Filing separately could afford more protection for you if the IRS comes around asking about a creative return.
And when a marriage is on the rocks, many couples decide to start splitting taxes even before the divorce decree is entered. This way they can avoid being tied together by tax issues after the marriage is over.
Not always a perfect union
But married filing separately could have some drawbacks.
Although the tax-rate disparities between single filers and married couples have been lessened in the two lowest tax brackets, spouses who file separately will find the tax rates for them aren't as amenable in the upper ranges. In fact, a check of the tax brackets shows married-filing-separately taxpayers face the 28 percent, 33 percent, 35 percent and 39.6 percent brackets sooner than do other unmarried taxpayers.
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For example, a single filer with taxable income of $75,000 in 2013 would pay a maximum tax rate of 25 percent. But a married taxpayer who earned that same amount and filed a separate return would see a portion of his income fall into the 28 percent bracket. And while a single filer can make up to $183,250 and stay in the 28 percent range, a married taxpayer filing separately jumps to the 33 percent bracket when his taxable income hits $111,526.