Should a Married Couple File Jointly or Separately?
Currently, married couples file jointly because they owe less tax that way and will receive a bigger refund. Their tax rate will be lower, and their standard deduction larger, than if they file separately. The paperwork is also very straightforward. Young couples that meet certain criteria might even be able to use Form 1040EZ, which is only a single page. Most married couples, however, will have to use either Form 1040 or Form 1040A, depending on circumstances.
If a same-sex couple were married in a jurisdiction that allows such marriages, that couple can file jointly even if the jurisdiction where they currently live does not recognize their marriage. The law also covers both domestic entities that are not states, such as United States territories, and foreign countries that sanction same-sex marriages. The stipulation for common-law couples is similar. The only difference is that the state where they now reside must recognize common-law marriages.
Why File Taxes Separately?
Couples should carefully consider why they want to file separately rather than file jointly. There are reasons, and they may include being divorced, if one spouse is unsure that the other is reporting all applicable income, if one spouse doesn't want to be responsible for the other's tax debt, if one spouse has excessive medical expenses or the couple's situation is one of the rare cases where its refund will be greater than when filing a joint return.
When one spouse has a significant amount of unreimbursed out-of-pocket medical expenses, filing separately can sometime actually help the couple to save money. This is because the IRS allows you to only deduct for medical expenses if they exceed 10% of adjusted gross income (AGI). Therefore, if one of the filers has medical expenses which exceed 10% of their AGI but the couples collective medical expenses do not exceed 10%, filing separately may be beneficial in order to claim this deduction.
Filing separately might also be a better option when one spouse owes back taxes to the IRS. If the spouses file jointly, the spouse without the debt becomes responsible for what his or other significant other owes. Therefore, if they would otherwise be due a tax refund, filing jointly would cause the refund to be applied to the other spouse's debt.
There are many things that no longer apply if the couple files separately. These include child and dependent care credits, the earned income credit, the exclusion credit for adoption, in most cases, and the deducting of bond interest.
Furthermore, there are certain common deductions that only count half as much as they do when filing a joint return. These include child tax credits, personal exemption deductions, itemized deductions, credits for retirement savings, capital loss deductions and the standard deduction.
Couples should also remember that they cannot take the standard deduction if one of them itemizes deductions. Couples who file separately and also have rental income can only deduct half of the standard amount that helps cover rental property losses, namely $12,500 instead of $25,000. In the states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, couples who file separately might have their incomes classified as community income. IRS Publication 555 covers community income in detail. In short, the community property provision states that even though each spouse submits income earned on each of the separate forms that is filed, each spouse must also report all income earned while married during the year in question.
Can a Return That has Already Been Filed Be Changed From One Type to Another?
In short, yes. Couples who wish to change from separate to joint may file Form 1040X within a period of three years from the original date of filing. Couples switching from filing separately to jointly, such as a situation where one spouse dies during the year, have one year to file the amended return as stipulated in Publication 559.
Other Considerations
If one spouse files separately, that person has the option of being the "head of household." To qualify for this option, that person must pay more than or equal to half the upkeep of the home in question, be unmarried on December 31 of the year in question, be living with someone who is not his or her parent for 183 or more days during the year in question or be responsible for a dependent parent, live-in or not.
To be considered unmarried for filing as "head of household," the person must meet all of the following criteria in addition to the criteria for filing "head of household" in the first place. The person's spouse must not have lived with the filer for more than 182 days in the year in question, the person's child, or children, live with the person and the person must be eligible to claim the child, or children, as a tax exemption, or exemptions.
Note that the person might not have to claim the child, or children, as exemptions if the noncustodial parent has already claimed them as exemptions on another return. Anyone married to a foreign national who is a nonresident alien cannot claim that spouse as a qualifying person to file as "head of household" and would need another qualifying person. Choosing to recognize one's spouse as a resident alien classifies a taxpayer as married, which means "head of household" is no longer applicable. People file as "head of household" when they qualify because they're allowed greater exemptions and will receive a larger return than if they file as single or married filing separately.