file jointly or separately?

[feh]

My wife and I have always filed jointly. I've always been under the impression that results in the best tax outcome.

Are there any rules of thumb or specific situations where it might make more sense to file separately?

Thanks.

[jIM_Ohio]

YES
depends on the state

Ohio filing does not have a "filing status" meaning 80k of joint income is not the same as one spouse making 50k and one spouse making 30k.

So its possible that filing seperately will reduce federal refund, but significantly increase state refund.

[sandrark]

The main instance that I've heard of is when one spouse has significant medical debt that doesn't meet the combined AGI threshold for deduction, but makes a big difference when filing singly.

Sandi

[wnlbutterfly]

You can do it both ways on paper and see the difference. At our tax office we even had a button we can hit and it will separate it out for the client to see. Rarely does it benefit to do MFS.

But it really depends on if you have credits for children or get EIC. There are a LOT of stuff you can't take if you are MFS.

[feh]

You can do it both ways on paper and see the difference. At our tax office we even had a button we can hit and it will separate it out for the client to see. Rarely does it benefit to do MFS.

But it really depends on if you have credits for children or get EIC. There are a LOT of stuff you can't take if you are MFS.

We have one child.

Our tax return is probably very average in most respects, except for 2 things: 1) we don't have any mortgage interest and 2) my salary is probably 95% of our combined salary.

[MonkeyMama]

Most (if not all) tax software will run your returns both ways and tell you the best way to file.

There are a few very unusual exceptions where filing separate makes sense.

[jIM_Ohio]

We have one child.

Our tax return is probably very average in most respects, except for 2 things: 1) we don't have any mortgage interest and 2) my salary is probably 95% of our combined salary.

This is a case where it might make sense to file seperately in some really wierd conditions.

I am "guessing" you do not itemize because schedule A would not have enough deductions on it without mortgage interest. That is a guess though.

If you came across a year where you had astronomically high medical bills for someone in family, you could do a test to check the following:

If you did MFJ could you claim the medical bills on schedule A and see a benefit? If so, this is probably your best route.

If you could not claim medical bills MFJ (because of AGI restriction) and you were careful enough to when you incurred bills to always have the bill go to the person with the LOWEST AGI in the household, its possible if they claim the medical bills, they will meet the AGI tests and be able to itemize those and reduce your overall tax burden.

You would also need to factor in state returns if you have state taxes before deciding. As another poster mentioned, some tax preparation firms have a button they hit to analyze state and fed taxes with all filing statuses to show which makes sense.

Couple of caveats- if one spouse does standard deducition MFS, both must take standard deduction. If one spouse itemizes MFS, then BOTH must itemize, even if one spouse has ZERO on schedule A.


If you do MFS you cannot contribute to Roth IRAs (for example)

The reasons to do MFS:
a) you did not meet the tests to do a married filing jointly return (believe it or not, its possible to be married but not meet the requirements to do MFJ).
b) There is a specific (rare) tax benefit to dividing income and deductions to each spouse.
c) you refuse to sign the return prepared by your spouse.

[feh]

Thanks for the info Jim. We are able to itemize every-other year due to bunching property tax payments, but we won't for the 2009 tax year.

This is a case where it might make sense to file seperately in some really wierd conditions.

I am "guessing" you do not itemize because schedule A would not have enough deductions on it without mortgage interest. That is a guess though.

If you came across a year where you had astronomically high medical bills for someone in family, you could do a test to check the following:

If you did MFJ could you claim the medical bills on schedule A and see a benefit? If so, this is probably your best route.

If you could not claim medical bills MFJ (because of AGI restriction) and you were careful enough to when you incurred bills to always have the bill go to the person with the LOWEST AGI in the household, its possible if they claim the medical bills, they will meet the AGI tests and be able to itemize those and reduce your overall tax burden.

You would also need to factor in state returns if you have state taxes before deciding. As another poster mentioned, some tax preparation firms have a button they hit to analyze state and fed taxes with all filing statuses to show which makes sense.

If you do MFS you cannot contribute to Roth IRAs (for example)

The reasons to do MFS:
a) you did not meet the tests to do a married filing jointly return (believe it or not, its possible to be married but not meet the requirements to do MFJ).
b) There is a specific (rare) tax benefit to dividing income and deductions to each spouse.
c) you refuse to sign the return prepared by your spouse.

[jIM_Ohio]

Thanks for the info Jim. We are able to itemize every-other year due to bunching property tax payments, but we won't for the 2009 tax year.

Keep in mind just because you itemize does not mean you jump and do MFS. I already concluded you did not imply this, but am pointing it out.

Schedule A has some deductions which are phased in or out by AGI. Medical Bills were a good example- if you make 100k the first $7500 of medical expenses is "on you" before you can deduct them (see lines 1-2-3-4) for schedule A. I consider it self explanatory, but maybe this helps:

If you have $600 or $6000 of medical expenses with the 100k AGI, $600<$6000 which are both less than $7500, so you cannot deduct with 100k AGI. $7500 is 7.5% of AGI, which is the requirement for medical expenses to be deducted on schedule A (7.5% is the phase in).

If you have $8000 of medical expenses, $8000 is higher than $7500, so $8000-$7500=$500 which means you deduct $500 from income, and if in 15% tax bracket, you just got $75 back for $8000 of medical expenses.



If that 100k income was spouse 1 making 95k and spouse 2 making 5k, what I would do is prepare a return for both spouses.

For the 95k return, put most of the deductions- property taxes, mortgage interest and similar. Try to put any non AGI tested deductions on this return.

On the 5k tax return, put the medical expenses. 7.5% of $5000 is $375.

If the medical expenses were $600, you could deduct $600-$375=225, that is $22 back on return (10% bracket)

If the medical expenses were $6000 you could deduct $6000-$375=5625 which is $562 back on return (caveat to this, I don't think you can deduct $6000 of expenses if income was $5000, but other than that, the math is accurate).

If the medical expenses were $8000. the math is $8000 (medical expenses)- $375 (7.5% AGI floor)=$6625 (what you can deduct), at 10% bracket this is $662 back to taxpayer.


Look at schedule A and see other items which could meet this- unremibursed business expenses is one I can use from time to time and has an AGI floor.

[feh]

Keep in mind just because you itemize does not mean you jump and do MFS. I already concluded you did not imply this, but am pointing it out.

Right. I wasn't implying we'd MFS next year; I was just letting you know your assumption that we (usually) take the standard deduction was correct.