There are a number of different filing statutes available to an individual filer, five to be exact, but if you are married, you will need to decide whether to file jointly with your spouse, or to go out on your own and file separately. There are advantages to each one, as well as certain drawbacks. We’ll discuss both in a moment.
As a brief overview, the other three possible filing statuses are Single, Head of Household, and Qualifying Widow(er) with Dependent Child. Out of these three, the only other filing status that can potentially be used by a married individual is Head of Household. This status carries a provision whereby a married individual can select this option if they are “considered unmarried” in the eyes of the IRS. In order to be considered unmarried, your spouse must not have lived with you during the last six months of the tax year. Other qualifications must be met as well before choosing this filing status.
Married Filing Joint
If you are legally married, you may choose this filing status. Joint filers agree to report their combined earnings and deduct their combined allowable expenses. Even if only one spouse works or has reportable income, you may choose to file together. The primary advantage to filing joint, especially in the case of dual incomes, is that the total amount of tax due is likely lower than if each spouse were to file separately. Additionally, your Standard Deduction, should you opt to take it over Itemized Deductions, may be higher. The 2008 Standard Deduction for joint filers is $10,900; separate filers take a Standard Deduction of $5,450. Although the deduction for separate filers is exactly half that of joint filers and seemingly of no advantage one way or the other, it still may be beneficial to file jointly because of the way the tax brackets increase percentage wise as income rises.
One possible drawback is that both you and your spouse may be held jointly liable for any amounts due, or amounts that later become due, on a joint return. The IRS does NOT consider each spouse 50% liable. Each party is considered 100% liable, and in the case of an unpaid tax liability, the Service will look to collect the full amount from either spouse. Additionally, bear in mind that a divorce decree does NOT, under any circumstances, absolve one spouse from joint liability. Even though a divorce or maintenance decree may assign previous outstanding tax balances to one spouse or the other, the IRS will continue to collect from both. Any repayments sought after by the paying spouse would have to be recouped through civil court.
Occasionally, an individual may feel that they should not be held liable for a balance that was caused solely by items being incorrectly reported or not reported by their spouse. For example, a jointly filed return may show a refund, which is sent out. A year or so later, the IRS assesses a deficiency because one spouse failed to report a 1099 for Non-Employee Compensation done on the side. The non-liable spouse may qualify for Innocent Spouse Relief, if they meet a number of qualifications. See IRS Publication 971 for information.
Another concern that joint filers have is in regards to their refunds. Joint refunds will continue to be offset to previous tax balances, even if those balances were from when an individual was single or even married to someone else. For example, an individual who was recently married may also have a tax debt from a prior year when they filed single. In order to prevent their spouse’s portion of the refund from being applied to the old balance, a Form 8379 should be filed with the current year return. This does not “split” the refund, but grants relief to the non-liable spouse so that his or her portion of the refund (from withholdings from their employer, estimated tax payments that they made, credits that they alone are able to take, etc.) is not applied to their spouse’s balance.
A few other things to keep in mind regarding the joint filing status: If you are divorced by a final decree on the last day of the calendar year, you are considered unmarried for the entire year and you cannot file jointly. In addition, if your spouse died at any point during the tax year, you are still considered married and can choose to file jointly. If this happens, the executor or administrator must sign the return for your spouse. If no one was appointed to that capacity, you may sign for your spouse and enter “Filing as Surviving Spouse” next to their name.
Married Filing Separately
Individuals who live apart from their spouse, are legally separated, meet certain tests, or are concerned about previous tax debts that are specific to one spouse only, may choose to file separately from their spouse. If you file separately, you can also continue to take an exemption for your spouse ONLY if your spouse had no gross income and was not the dependent of someone else.
Unless you have a pressing concern such as mentioned above, it generally is not beneficial for both spouses to file separately. You may not be eligible for certain credits, such as the Child and Dependent Care credit, Earned Income Credit, education credits such as the Hope Credit and the Lifetime Learning Credit, and others. You are also limited in certain respects. Your capitol loss deduction is half of what it would be for joint filers ($1,500 verse $3,000), and any first time homeowner credit is reduced. Additionally, if your spouse itemizes deductions, then you MUST also itemize or else take no deduction; you cannot choose to take your standard deduction.
If you live in one of the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered community income for tax purposes. See Publication 555 for more information regarding community property law.
One important final point to be aware of is that individuals who file separate can change to a joint return any time within three years of the due date of the separate returns. However, joint filers CANNOT later choose to file separately.
If after considering the above, you’re not sure what filing status may be most cost effective, a good recommendation is that you figure your tax both on a joint return and on a separate return, and then choose the method that gives you the lower combined tax.
