Filing status. If you owe back taxes, or after you file returns, if you think you will have a tax debt, the question of which status to choose often comes up. In most situations, filing a Joint tax return will lower your overall tax debt. Yet we often have married couples who only have one person who has not paid enough tax, therefore only that person would have to deal with the IRS. So if you file separate, your tax debt goes up. But one spouse remains somewhat insulated from the IRS. Filing status.
The relationship strength also comes into play in making these decisions. We hear the spouse who was responsible often say, “Don’t involve me, keep me from dealing with the IRS”. So we file separate, knowing that will increase the tax debt. Often, the irresponsible party wants to clean up the mess, to prevent divorce, which does happen over tax matters. In these situations, we best serve our clients by giving you a detailed breakdown of the situation, if you file either way, so you know AHEAD of time, what you will be dealing with. Once we get past that, then we can move on to determining your options for dealing with the tax debt, whichever filing status you choose.
Here is a list of tax considerations if you file separately. These will all generally increase the amount of tax you will owe.
- Lower itemized deductions and exemptions
- They will disallow the credit for elderly or disabled
- The first time homebuyer tax credit will be in half
- The standard deduction will be cut in half
- If spouse itemizes deductions, you will be disallowed from using the standard deduction
- A reduced child credit
- The earned income credit will be eliminated
- Dependent care expense credit eliminated
All of these will certainly increase your tax rate and what you have to pay. Having a Tax Professional guide you through this decision is crucial, if you want to lower what you owe, and cause the least amount of friction between married couples.