The Cost of Filing Separate

A common question I get early in tax season is always married couples who wonder if it is better to combine their finances and file a tax return joint, or should they keep their financial lives separate?

The Marriage Tax

While the IRS has evened up some of the items such as tax rates to be equal whether filing jointly or separate, there are many credits and deductions that are greatly limited when filing Married Filing Separate status. The types of items you will lose out on are:

  • Education Credits and Deductions
  • Student Loan Interest Deduction
  • Rental real estate deductions to offset other income
  • Child and Dependent Care Credit

You also will be affected by how your spouse files, even though you do not file together. For example, if one spouse itemizes deductions the other spouse must also itemize, even if they do not have anything to deduct. Some states also are community property states where technically all income and expenses should be split equally, minimizing the advantages of filing separately.

Downsides of Filing Jointly

This doesn’t mean filing jointly is right in every situation. There are some circumstances, especially if one spouse is racking up tax debt or has a questionable business where the other spouse may not want to file jointly. Some married couples also like to keep all finances separated, so as not to put pre-marital assets in the community property category.

Merging Assets After Marriage

A good marriage is built on trust, and a piece of that trust is financial transparency. However, each couple has their own comfort level that will determine how quickly assets should be merged. There are many ways to do this, what is most important is approaching this from the intention that you are a team and working together to make your lives better.



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