File married jointly or separate?

Question

My wife and I keep our financial accounts seperate, and simply share a mutual credit card that we equally contribute to for mutual expenses (mostly groceries).  I purchased 2 houses with my own finances in 2017, which are completely in my name.  Would we be best off filing separate?

My wife and I got married in 2016.  She had $0 taxable income in 2016, but now has a full year of taxable income in 2017.  I will also note that my wife and I are purchasing future investment properties together, starting 2018.

Would I be best off filing as separate?  Any advantages for filing jointly?

Thank you

Basit Siddiqi · Answer

@Ben KirchnerThere are 3 reasons that I can think of for filing separate.

• You and your spouse do not want the other to know his/her personal/financial information
• You and your spouse plan to divorce and you don't want to be held liable for the other's tax liability(if anything were to arise(IRS finds more taxes due at a later time and both spouses would be jointly liable)
• There are unique scenarios that filing separately creates a less overall tax liability.

for scenario 3 - ask your accountant to run the numbers if you both files separately and filed jointly. The software he uses should be able to do this with no issue.

Paul Allen · Answer

@Ben Kirchner that's a question for your marriage counselor, not your tax guy.  :)

Paul Allen · Answer

Filing separately reduces or eliminates eligibility for several adjustments, deductions, and credits and frequently results in a higher amount of tax being owed. Filing separately can adversely impact the following tax benefits:

• In most cases you cannot claim the credit for Child and Dependent Care Expenses.
• You cannot claim the Earned Income Credit.
• You cannot claim any education credits.
• You cannot claim the adjustment for Student Loan Interest.
• You cannot claim the exemption for interest on EE bonds used for education.
• Your Child Tax Credit is half what it would be on a joint return.
• Your Capital Loss limit is cut in half.
• Your Saver's Credit is cut in half.
• You cannot claim passive losses on real estate rental property (if you still live with spouse)
• Your Alternative Minimum Tax Exemption is cut in half.
• Your standard deduction is cut in half.
• If your spouse itemizes you can't take the standard deduction at all.
• You expose more Social Security to being taxed.
• You cannot claim the adoption credit, and if you received adoption benefits from your employer they are now taxable.
• Not really a tax benefit, but if you file separately your tax preparer will charge you for preparing two returns. Jointly, just one.

Michael Plaks · Answer

@Ben Kirchner

Generally, filing jointly reduces your combined taxes. The tax law is intentionally designed to encourage joint filing.

I will add five more items to the excellent list from @Basit Siddiqi

4. There are trust issues and suspicions that the other spouse might be doing/owning something undisclosed (to you and/or to the IRS), and you don't want to have anything to do with it when the stuff hits the fan.

5. One of you have a high liability exposure (plastic surgeon, for example), and you want to isolate the other spouse and his/her assets in case of a lawsuit.

6. Protecting one spouse and his/her assets in case the other one gets deep in debt and ends up in bankruptcy.

7. Planning for current health insurance or future Medicaid eligibility.

8. Planning for financial aid eligibility, including disability, college, etc.

In other words, you will be paying more taxes every year in exchange for gaining protection against possible future calamities or eligibility for some government benefits.

All of these are more complicated when you plan to combine your money for future investments, so you may want to run it by a family attorney experienced in your state law.

Ben Kirchner · Answer

Thanks @Paul Allen.  It sounds like you're saying I would do better with my return if I were to file jointly, with my spouse.  I guess in that case, I would have questions would be with separate finances/expenses/deductions, how the return would be split between my wife and I.  There is some gray area, with the real estate deductions all being from my own expenses, me having more things taxed, and her only having her W2 employer to claim.

File married jointly or separate?

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