For most married couples, filing a joint tax return leads to the lowest combined tax bill. However, there are situations where opting to file separately could reduce your overall tax burden — or serve other strategic purposes — even if it comes at a higher cost.
When both spouses earn similar W-2 incomes, their tax liability may not change much whether they file jointly or separately. However, tax credits, deductions, and individual circumstances can create significant differences. Understanding when filing separately makes sense requires balancing tax savings, lost benefits, and other non-tax factors.
Key Trade-Offs of Filing Separately
Before choosing this option, it’s important to be aware of some limitations:
- Lost Access to Certain Credits: Married couples filing separately are generally ineligible for valuable credits such as the Child and Dependent Care Credit and most education credits.
- Lower Capital Loss Deduction: Capital loss deductions are capped at $1,500 for separate filers instead of $3,000 for joint filers.
Even with these drawbacks, filing separately can be beneficial under the right circumstances.
When Filing Separately Might Save You Money
One common reason to consider filing separately is when one spouse incurs substantial medical expenses. Medical expenses are deductible only to the extent that they exceed 7.5% of your adjusted gross income (AGI). By reducing the AGI through separate filing, you may increase your allowable deduction.
Another scenario involves student loan repayment. If one spouse uses an income-driven repayment plan, filing separately could reduce their loan payments, even if it results in a higher combined tax bill.
Non-Tax Considerations
In some cases, couples may choose to file separately to avoid joint liability for each other’s tax debts or to maintain financial privacy.
A Complex Decision
The choice between filing jointly or separately is not one-size-fits-all. A thoughtful analysis of income, deductions, credits, and broader financial goals is crucial. Consulting with your tax advisor can help you evaluate the trade-offs and determine the best filing strategy for your unique situation.
Conclusion
Filing separately may offer benefits, but the loss of tax credits and deductions must be carefully weighed. Work with your advisor to explore your options and develop a strategy that aligns with your financial objectives.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
