Once married, you’ll have more tax filing options, including Married Filing Jointly (MFJ) or Married Filing Separately (MFS). You’ll also find that each option comes with its pros and cons.
Filing jointly comes with more tax considerations and deductions because the IRS encourages MFJ. And those who opt for MFS may lose access to certain tax credits and end up with higher tax rates and lower contribution limits for their retirement plan. However, some married couples may find more benefits to filing separately due to their unique circumstances.
Marriage comes with so many tax benefits that some couples jokingly say they should get married just to access certain tax credits and deductions. To file jointly, you must be legally married and agree to file taxes jointly. You and your spouse combine your income and deductions on one 1040 tax return, regardless of whether you or your spouse have no income or deductions to report.
Marriage brings tax benefits and options that single filers can’t enjoy, including gift taxes, larger deductions for charitable contributions, and IRA beneficiary options. Filing jointly also comes with advantages such as lower tax rates and, if qualified, filing for the Earned Income Tax Credit. Marriage also changes your tax bracket; filing a joint return may bump the spouses into a higher tax bracket.
Of course, to enjoy the tax benefits of marriage, you need to be aware of a few tax changes. For example, if you’ve changed your name, you’ll need to notify the Social Security Administration of the name change since your tax return is filed under your Social Security Number. You may also need to update your Form W-4 with your employer to reflect the marital status change.
Therefore, there is some work involved before you can qualify to file taxes jointly with your spouse.
Case study: Married Couple With Unfiled Tax Returns When our married taxpayers came to us, they had not filed tax returns for many years. The wife was a W-2 employee and was withholding at the correct level. However, the husband was self-employed and did not make any estimated tax payments. As a result, the liability, if they filed joint tax returns, was approximately $100,000.00. Our taxpayers collectively had assets in the approximate amount of $100,000.00, meaning that they were likely not eligible for an Offer in Compromise. Utilizing pre-Offer planning, we filed Married Filing Separate tax returns on behalf of our taxpayers and the husband intentionally incurred a Married Filing Separate liability of approximately $120,000.00. Utilizing this strategy, the wife was not responsible for the husband’s liability. Further, this strategy allowed us to split the value of their joint marital assets so that the IRS could only attach one-half of the marital estate or $50,000.00. The IRS accepted the Offer in Compromise we filed on behalf of the husband for $50,000.00 instead of taking the entire marital estate valued at $100,000.00. Our taxpayers remain married, no longer have a debt to the IRS and still have assets worth $50,000.00.
In an MFS scenario, each spouse is accountable for their own taxes, including processing, filing, and potential errors. When you sign a joint return, you are both responsible for the accuracy of the return and any penalties that may later apply. Therefore, MFS is the better option for spouses that want to separate tax liability and may be necessary for a spouse who suspects the other of hiding income or falsely claiming credits or deductions deliberately.
In some cases, the goal is to lower overall tax exposure, which can happen when one spouse has a significant itemized deduction, such as a medical expense. Spouses may also consider filing separately if they have debt obligations like back taxes or child support, and they don’t want one’s debt to go towards the other’s back taxes. Also, if your student loan is enrolled under an income-based payment plan, you’ll likely pay lower monthly payments if you choose MFS.
While filing taxes separately isn’t the best money-saving strategy and eliminates certain tax benefits, it may still be the other better option for some couples. If you have any questions on other kinds of support you can get when it comes to your taxes, we invite you to contact the Golden Tax Relief team.