If you're considering tying the knot, you may be smitten with the tax benefits that married couples receive. While most couples do benefit from tax credits they receive when filing taxes jointly, it's important to understand that in some cases, this may not be true. Before you settle down, it's important to understand both the benefits of marriage on taxes as well as the cases in which filing jointly might not be beneficial.
Options for Married Couples
Married couples are not required to file their taxes jointly. They can choose to file together or separately. In most circumstances, filing jointly results in lower overall taxes. However, in some cases where one spouse has a lot of tax debt or when both spouses earn similar incomes, it may be beneficial to file separately. According to "USA Today" Money writer Sandra Block, “The trick is in figuring out whether the benefits of filing separate returns outweigh the many drawbacks.”
Benefits of Filing Jointly
For most married couples who decide to file their taxes jointly, their total taxes will be lower than if they were single filing separately. Married couples filing jointly are entitled to a variety of tax credits that singles aren’t, including the Hope and Lifetime Learning Credit for student loan interest, the child and dependent care credit and the adoption expense credit.
Filing jointly can also help alleviate taxes you accrue on taxable investments like stocks. For example, if you invested in stocks that profited but your spouse’s stocks took a dive, you can use his losses to offset the amount you’d be taxed for your stock’s profits. Couples who file jointly can also contribute more to tax-deductible individual retirement accounts. Filing just one tax return for both of you can also save time and money that you’d spend if you filed each return separately.
When to Consider Filing Separately
In most cases, couples receive tax breaks when filing jointly, but this isn’t always the case. It’s important to remember that when you file a joint return, you are responsible for your spouse’s tax decisions as well as your own. If your spouse owes a lot in taxes, the refund you would have received will be reduced. Likewise, if one spouse has many miscellaneous deductions like business expenses, union dues or uncovered medical expenses, it may be wise to consider filing separately.
Be especially careful of filing jointly if your spouse has defaulted on student loans, has not paid child support or has committed tax fraud in the past. In any of these cases, you should consider filing married but separately so that you do not become liable for these debts.
To get the most out of filing taxes jointly with your spouse, strong communication is key. Once you both gather important documents such as W-2s and 1099s, have a conversation about what each spouse owes, how much student loan interest each paid and any large expenses or assets that each individual incurred in the last year. Whether you spent a lot on medical expenses, purchased a home, paid student loan interest or gained other assets as individuals, these will affect your taxes. Calculate your taxes both separately and jointly to determine which method leads to the lowest taxes.
Megan Martin has more than 10 years of experience writing for trade publications and corporate newsletters as well as literary journals. She holds a Bachelor of Arts from the University of Iowa and a Master of Fine Arts in writing from The School of the Art Institute of Chicago.