The Internal Revenue Service (IRS) considers you lawfully married if you fall under any of these categories:
1. You were married under state law and live together.
2. You are living together in a common law marriage recognized in the state where you live or where the common law marriage began.
3. You are married and living apart, but not legally divorced.
4. You are separated, but not yet under a final decree of divorce.
If you’re like most couples (95%) it probably just makes common sense to file jointly. But there are times when filing separately may be the better option for you and your loved one. Knowing your options can save you money and here at Gonzalez & Arrambide, Inc. we want to make sure you make the most informed decision. So here are 5 times filing separately might just make more “cents”.
1. Too much money
It’s an unfortunately reality that the more money you make, the more taxes you may pay. This is especially true for couples who may find themselves in a higher tax bracket once they combine incomes. Filing separately in this scenario (especially when spouses make comparable incomes) may keep you from jumping up the next level, but just make sure to be careful. A “married filing separately” status may cut into tax breaks.
2. You or your spouse already owe the IRS
If you or your spouse brought overdue taxes to the relationship (including delinquent federally subsidized school loans) you may have your tax refund applied to that overdue bill. Filing separately can help couples to avoid this situation, but make sure to take into account the overall burden it may cause on your individual tax circumstances.
3. The unfortunate divorce
Life happens and sometimes relationships come to an end. If you are in the process of getting divorced (or even seriously considering) it may be a wise move to file separately. It’s extremely important to realize that a joint return means liability for both parties, and if you’re already in the process of ending your marriage, it’ll probably help you to avoid those post-divorce IRS complications.
4. Expensive medical bills
The IRS only allows you to deduct out-of-pocket medical expenses that exceed 10% of your adjusted gross income. This may be a hard break to catch for those marriages that bring in too much money on a combined income. If those medical bills are taking a good portion of your AGI, it may be to your benefit to file separately to claim more medical deductions to one income.
5. Student loans
Some student loan payments are income-based which means that your AGI can affect those costs. If you decide to file separately, those payments become based on only the borrower’s income, rather than on the couple’s joint income. This may cause you to pay extra on in your end of year tax return, but may save you enough money each month to make up for that fee.