Many people have questions about why their filing status matters. Some of the most misunderstood filing statuses are Married Filing Jointly (MFJ) and Married Filing Separately (MFS).
MFJ is a filing status for couples who have wed before the tax year’s end. MFJ allows you and your spouse to record your incomes, credits, exemptions and deductions on the same return. The alternative is MFS, which means you and your spouse file separate tax returns.
While there are many legal and personal reasons why you might choose to file separately, the IRS prefers that you file MFJ and encourages you to do so by offering tax breaks to married couples who file together. Reaching out to a tax attorney at Polston Tax for advice can help you make your decision and ensure every step of the process is handled correctly.
Tax Credits for Married Filing Jointly
The IRS shows its preference for filing MFJ by allowing certain credits only when MFJ. These tax credits include:
- Earned Income Credit
- Education credits, including the lifetime learning credit (LLC) and the American opportunity tax credit (AOTC)
- Full child credit
- Dependent care credit
- Adoption credit on the year adoption took place
- Credit for individuals who are disabled or elderly
The IRS also allows MFS to amend to MFJ within the allowed amendment period. However, you cannot do so after the April deadline. If you want to learn more about the tax credits and deductions you can take, reach out to us at Polston Tax.
Advantages and Disadvantages of Filing Separately
Though filing a joint return is advantageous for many married couples, in some cases, you and your spouse may be better off filing separate returns. Some of these circumstances include the following:
- You could get a larger refund: Though not usually the case, you may receive a larger refund if you file separately. Estimate and compare your refund and tax liability for filing jointly versus filing separately.
- You qualify for more deductions: You may be able to receive a greater amount for some deductions if your adjusted gross income is lower on a separate return than on a joint return.
- You want to safeguard your refund: If your spouse needs to pay back taxes, child support or student loan debt, you may want to file separately to protect your refund money. If you were to file jointly, the IRS could take those costs from your refund, as a joint return means you’ve combined your tax liability with your spouse’s.
- You suspect your spouse of tax evasion: Filing separately allows you to protect yourself from an IRS tax audit if you suspect your spouse of cheating on a previous tax return or evading taxes. If your suspicions are correct, you won’t be liable for your spouse’s back taxes, interest, penalties or fines.
- You want to keep your responsibility separate: In some cases, you may want to keep the responsibility for your tax liabilities separate. This ensures you won’t be responsible for paying your spouse’s liability on top of your own.
However, for many married couples, filing jointly offers more benefits than filing separately. If you file separately, you and your spouse will have access to fewer tax benefits. This leads to your combined tax liability on separate returns to generally be higher than on a joint return. Some disadvantages of filing separately include:
- You can’t claim the Earned Income Credit.
- You may have a higher tax rate when you file separately.
- You can’t claim the standard deduction if your spouse itemizes.
- You may not be able to claim the child and dependent care expenses credit.
- Your standard deduction will be half of what you could deduct on a joint return.
When deciding to file MFS, you and your spouse must choose whether to itemize or use the standard deduction. You must use the same method regardless of whether it is beneficial for both you and your spouse. For example, if a married couple decides to file separately and chooses to itemize, the results may be advantageous for only one spouse.
Let’s see how this filing choice affects the couple. The home is in the husband’s name, he has most of the state taxes taken out of his paycheck, he tithes to his church and donates regularly to charity throughout the year. She runs a business as the sole owner (Schedule C), she doesn’t pay quarterly estimates and no property is in her name.
The result is the husband will have the mortgage interest, mortgage insurance premiums — depending on income, the state taxes and all his donations. Therefore, his deduction will be several thousand dollars higher than the standard of $6,350, which leads to a $200 dollar decrease in taxes if they file jointly.
For the wife, the result doesn’t fare so well. If they didn’t realize they had to use the same method and her itemized totals are less than $500, it will result in a loss of $5,850 or more below the standard deduction. The consequences of this will create higher taxes due for the wife. This is caused in part by removing some of the credits above, and the consequence of the lower deduction amount allowed.
Get Tax Help From Polston Tax
If you’re unsure whether it’s best for you and your spouse to file Married Filing Jointly or Married Filing Separately, Polston Tax can help! No two tax situations are the same and we can help you figure out which ones work best for your financial situation. Contact us at Polston Tax today to schedule your free consultation!