Friday, December 28, 2012

Married Filing Jointly vs. Married Filing Separately

Welcome back to Tax Charm, I hope everyone had a beautiful Christmas!

 Married Filing Jointly (MFJ) vs. Married Filing Separately (MFS) is the topic I will discuss in today's post.  This is a very popular question . My married girlfriends call me up and  tell me they want to file Married Filing Separately because their husband makes too much money. I usually advise them against filing separately.  The Married Filing Separately status robs people of a vast amount of tax benefits, the IRS wants all married couples to file their taxes together. There are only a few amount of circumstances in which I would advise a person to file MFS. I will discuss these at the end of my post.The number one circumstance I will advise someone to file MFS  if he/she owe  federal student loans and are in repayment( discussed in next post).

The following  tax benefits are  disallowed by the IRS if one files Married Filing Separately:

  •  Earned Income Credit
  • Child Tax Credit
  • American Opportunity Credit or Lifetime Learning Credit
  • Child and Dependent Care Credit
  • Tuition and fees deduction
  • Student loan interest deduction
  • Tax-free exclusion of US bond interest
  • Student loan interest deduction
  • Tax-free exclusion of US bond interest
  • Tax-free exclusion of Social Security benefits
  • Credit for Elderly and Disabled
Also, if one spouse itemizes deductions, the other spouse would also have to itemize. This tax rule holds true even if the other spouse has limited expenses to itemize. The spouse would be forced to itemize although it would be more beneficial to take the standard deduction.

So ,if you qualify for any of the above tax credits , File Jointly with your Spouse.

There are only a few instances when it makes since to file Married Filing Separately.

  •   You suspect your spouse is evading taxes and you don't want to be held responsible
  •  One spouse has a significant amount of medical expenses
  •  Great amount of personal casualty losses incurred by one spouse (deductible only to the extent they exceed 10% of AGI).
  •  A vast amount of un-reimbursed employee business expenses,  tax advice fees and preparation, and investment expenses that are incurred by one spouse (deductible only to the extent they exceed 2% of AGI).
  • You are repaying federal student loans

When in doubt, work the numbers both ways, Married Filing Separately and Married Filing Jointly. Do this to find the tax situation in which the couple owes the less money or gets the most money back.

That's all folks!

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