If you're married, there are circumstances where filing separately can save you money on your income taxes.
The article below is accurate for your 2017 taxes, the one that you file this year by the April 2018 deadline, including a few retroactive changes due to the passing of tax reform. Some tax information below will change next year for your 2018 taxes, but won’t impact you this year. Learn more about tax reform here.
The Internal Revenue Service considers wedded taxpayers married if they are legally married under state law, live together in a state-recognized common-law marriage, or are separated but have no separation maintenance or final divorce decree as of the end of the tax year.
Of the 56 million tax returns married couples filed in 2009, the latest year for which the IRS has published statistics (at the time of writing), 4.3 percent belonged to twosomes who filed separately. These partners reported individual income and expenses on individual tax returns. They had to agree on either itemizing expenses or using the standard deduction. By filing separately, their similar incomes, miscellaneous deductions or medical expenses likely helped them save taxes.
Filing separately with similar incomes
A couple may pay the IRS less by filing separately when both spouses work and earn about the same amount. When they compare the tax due amount under both joint and separate filing statuses, they may discover that combining their earnings puts them into a higher tax bracket. Their savings depends on a variety of other factors, however, including their investment situation and whether they have children. The "married filing separately" status cuts the deductions for IRA contributions and eliminates child tax credits, among other tax breaks.
Using miscellaneous deductions by filing separately
Miscellaneous deductions can lower taxable income, but in order to enter them on Schedule A, they must add up to more than 2 percent of adjusted gross income (AGI). Spouses with union dues, job-search costs, tax-preparation fees and unreimbursed business expenses may find their miscellaneous deductions don't qualify when their higher combined income raises their AGI. A spouse who travels frequently for business could rack up a sizable tally in airline fees for baggage and itinerary changes that makes the miscellaneous deduction worth pursuing.
Filing separately to save with unforeseen expenses
Adjusted gross income also determines if a couple can use unreimbursed health care costs and casualty losses on Schedule A to save taxes. Unless out-of-pocket medical expenses exceed 7.5 percent of AGI for 2017 and 2018, they don't qualify as a deduction. Casualty losses must also total more than 10 percent of AGI. The spouse with the loss or substantial medical outlay calculates deductibility against his own, lower AGI when he and his partner file separate returns. When one spouse can lower taxable income this way, married filing separately might trim a couple's overall tax burden.
Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.
Filing separately to guard the future
When you don't want to be liable for your partner's tax bill, choosing the married-filing-separately status offers financial protection: the IRS won't apply your refund to your spouse's balance due. Separate returns make sense to prevent the IRS from seizing a spouse's refund when the other has fallen behind on child support payments.
Couples in the process of divorcing may shun joint returns to avoid post-divorce complications with the IRS, while a spouse who questions her partner's tax ethics may feel more comfortable living a separate tax life.
All couples living in community-property states must consider state law when deciding how to file.
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