Tax Advantages And Disadvantages Of Married Filing Jointly Vs. Married Filing Separately
In the U.S., being married comes with many tax benefits, the main one being able to file taxes jointly with your spouse. However, filing taxes jointly isn’t always the best financial decision for your household. There are several advantages and disadvantages of filing taxes as married filing jointly vs. filing separately. Learn more about tax implications of marital status.
Married Filing Jointly Vs. Married Filing Separately
Though the two sound very similar, married filing jointly (MSJ) or married filing separately (MSP) could have a serious impact on your finances.
But, before we start, let’s understand the difference between filing jointly and filing separately.
MSJ means that you and your spouse file one tax return together, which includes each spouse’s income and deductions. Discover the effects of changing jobs on taxes.
MSP is also exactly what it sounds like – each spouse files their own tax return. This is exactly how you filed tax returns before you got married. However, this type of filing is a little more complicated. Understand more about married couples filing taxes.
So, how does each option impact your finances?
Does The Marriage Penalty Tax Exist In 2022?
Before we dive in on the advantages and disadvantages of filing jointly or separately, let’s get one thing straight: there’s no such thing as a marriage penalty tax anymore.
Before 2017, those who filed jointly could have incurred a “marriage penalty tax” where, when both incomes were added, it pushed the couple into a higher tax bracket.
In 2017, the Tax Cuts and Jobs Act (TCJA) revised the tax brackets for those filing jointly. Now, all the tax brackets for filing jointly are now exactly twice as big as single brackets. More on IRS inefficiency.
Tax Advantages Of Married Filing Jointly
It’s important to realize that the government gives significantly more financial incentives for married couples. As such, the benefits to filing jointly are practically endless.
Here are the main tax benefits of filing jointly:
In 2021, MFJ American taxpayers would get $25,100 in standard deductions, compared to only $12,550 for taxpayers MFS. Explore more about tax deductions and donations.
Allowed to write off student loan interest for your spouse. More on tax deductions for specific professions.
$3,000 capital loss deduction limit. Learn about capital gains tax.
Have lower income tax brackets for same amount of earned income as MFS. Understand how inflation affects tax brackets.
Tax Disadvantages Of Married Filing Separately
For the majority of Americans, filing separately will bring more disadvantages than tax advantages. Let’s look at the most common tax disadvantages below.
Tax disadvantages of filing separately:
MFS taxpayers get half of the standard deduction available for MFJ taxpayers. More on common tax myths.
Many tax credits are unclaimable by either spouse. Understand tax relief programs for seniors and disabled.
$1,500 capital loss deduction limit per partner. Learn about charitable tax deductions.
Higher taxes. More on how much the IRS takes from winnings.
When Would One File Separately Instead Of Jointly?
Though the government incentivizes filing jointly, there are some situations where it would make more sense to file separately instead of filing jointly with your spouse.
Here are some instances when it would make more sense to file separately:
One partner has crippling debt or medical expenses. Explore resolving liens and levies.
One suspects that their partner is not being completely truthful on their taxes. Learn about consequences of tax evasion.
One partner is eligible for a high itemized deduction (over the $12,550 filing separately standard deduction limit). If spouses choose to file jointly, both must either itemize deductions or take the standard deduction. But, this isn’t the case for filing separately. So, for example, if one spouse is eligible for an itemized deduction of $18,000 while the other spouse is only eligible for a $5,000 deduction, they may save more by filing separately. The spouse with a deduction of $18,000 can file an itemized deduction while the spouse with a $5,000 deduction can file a standard deduction. Understand more about NFT taxes.
How Do I Know Whether It’s Better To File Jointly or File Separately?
The only foolproof way to know whether it’s financially better to file jointly or separately is to prepare both tax returns. Then, you look at the net refund and tax credits from each.
If there’s a large advantage for married filing jointly vs. married filing separately, be sure to go with that option!
Married filing jointly will most likely be the best option, however it’s always a good idea to double check.
If you owe back taxes. Check out our free tax consultation today!