Married Filing Separately? (The Wealth and Tax Planning Aspects)

In the US, 48.2% of adult Americans are married. Marrying your partner is not only a huge milestone but also has serious financial consequences, as well.

Though there are tax implications with getting married no matter what, some situations are better than others for married filing separately.

Of the many decisions you must make as a married couple, you should start your life out together, deciding on how to handle finances. One of those decisions also involves how your filing tax returns will get handled as a married couple. 

Couples must consider married filing separately vs. jointly when tax season rolls around. As you combine your life with another, why might you consider the option of married filing separately status?

Read on to learn about the wealth management and tax planning aspects of married filing separately.

Options for Tax Filing

married filing separately

Any taxpayer come tax season must first declare how they’ll file as a taxpayer. The tax filing status impacts the taxable income rate and what deductions and exclusions you might be eligible for as a taxpayer. 

The tax filing options include:

  • Single
  • Married Filing Jointly
  • Married Filing Separately
  • Head Of Household
  • Qualifying Widow(er)

Most married couples opt for filing married filing jointly. But what are the reasons and perhaps benefits of married filing separately. 

What Does Married Filing Separately Mean?

Married filing separately is a tax filing status for married individuals who choose to keep their incomes, deductions and credits separate. When married couples file a joint federal income tax return, they are both liable for any taxes owed.
However, when couples file separately, each spouse is responsible for the taxes on their own return. This can be beneficial in certain situations, such as if one spouse has amassed large amounts of debt or if one spouse earned more than the other in the year preceding the filing date.

When you file as a married person separately, it’s much like filing as a single person. When you opt for filing returns separately, there are several ways you will no longer connect to what your spouse does with taxes. 

Filing married separately means:

  • Responsible for your tax return
  • Responsible for your tax payments if you’re married
  • Can’t be responsible for your spouse’s taxes from taxable income
  • Can’t be legally responsible for any errors on the spouse’s taxes
  • Can’t be legally responsible for any omissions on the spouse’s taxes

Your tax return gets sent where you direct the IRS to send it. Your spouse can’t dictate where the tax return goes. 

Reasons to File Married Filing Separately

It’s almost assumed that filing taxes for couples will get done jointly. Yet, there are a few reasons why a married person might opt to file separately and benefit from it. 

Let’s take a closer look at why a married taxpayer might file separately from their spouse. 

Spousal Consent 

When a married couple files jointly, the IRS expects both parties to sign the tax return.
So, you might find yourself filing married separately if you have a spouse who can’t or won’t sign the tax form.

If you are still married but have a contentious relationship with your spouse, they might refuse to sign the form just to be difficult. If you want to avoid having problems with the IRS, then you could opt to file without them. 

If your spouse dies during the tax year, you can still file jointly, and it would be allowed that they haven’t signed. Otherwise, both people are expected to sign.

Income Disparity

Sometimes it happens in couples who are married that they have a big disparity in income between them. One spouse has relatively low wages, while the other is a high-income earner

If you’re a low-income earner, you might not want the tax burden of the other spouse’s income. The IRS will allow you to file separately for this reason. 

There is one caveat, though. If your high-income spouse doesn’t pay taxes, you could still get held responsible for the tax burden because you’re married. 

Liability Issues

The IRS takes the term jointly seriously on tax returns. It means that both parties of a couple are jointly responsible for the information found on the tax return. 

Both parties are responsible for the tax money due on the jointly filed tax return. They will also be held accountable that the information, deductions, and claims made on the form are accurate. 

You jointly are held responsible if there’s an omission or an error. 

Suppose you have concerns that your spouse is not being forthright in the information being provided to the IRS. In that case, you might opt to avoid the potential liability from not reporting accurately and file separately.

Student Loan Repayment Plans

Do you have student loans? If the answer is yes, you already know that most plan repayment requirements get based on income.

You may wish to set your payments based solely on your income versus the joint income from your tax return.

Married borrowers using the Income-Based and Income-Contingent Repayment Plans and the PAYE Plan are given permission through the plan to file separately when the plan determines payments.

Divorce or Separation

If, as a couple, you’re already separated and heading for divorce or even considering divorce, it might be the right time to begin separating your finances too. 

Couples who are still married but no longer living together or are working through the process of divorce, should opt to file separately.

Benefits of Married Filing Separately

“Married Filing Separately” provides a variety of benefits, including but not limited to the following:
  1. Allows for different filing statuses – By filing separately, each spouse can choose their own filing status, which may be beneficial depending on the individual marital situations.
  2. Possible lower taxes – Filing separately may lower total taxes due by reducing the chances of married couples pushing into higher tax brackets or being subject to non-deductible marriage penalties imposed by certain states.
  3. Potential deduction opportunities – Married couples who file separately may be eligible to deduct expenses that are otherwise not deductible when they file jointly, such as medical and dental expenses or investment losses.
  4. Simplifies debt repayment – When filing separately, each spouse must claim only their portion of any joint debt or other joint liabilities; this simplifies tracking and payment of those debts since it is not necessary to track them on both returns.
  5. Easy transition between statuses – Since married couples generally have the option of changing from a joined return to separate returns from one year to the next, it allows for more flexibility in making an educated decision about which status might be more beneficial for them in any given year.

Filing Status and Its Impact on Your Taxes

You should know that married filing separately deductions can be impacted when you file separately. 

For example if you are married but filing separately, in most cases you no longer qualify for these deductions if you file separately:

  • Credit for the elderly and disabled
  • Child and dependent care credit 
  • Earned income credit
  • American Opportunity or Lifetime Learning educational credits

Some deductions are no longer available because when you file separately you are likely taking the standard deduction. 

If you have an IRA through an employer, the income phaseout threshold for the IRA deduction is lower when filing separately.

Married Filing Separately or Married Filing Jointly, Which Is Best for You?

While most married couples choose to file a joint tax return, there are several scenarios where married filing separately might be the better choice. 

It always makes sense to consult with your tax specialist and financial advisor when making long-term financial decisions. 

Contact us at Bogart Wealth and let us help you navigate the right choices for tax season for your needs. 

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