Your married clients have a choice when it comes to filing their taxes. They can either file as:
- Married Filing Jointly (MFJ) – combined together on one 1040 tax return, or
- Married Filing Separately (MFS) – each files his or her own 1040 tax return
Whether they wed on January 1st, December 31st, or anytime between, newlyweds (and anyone legally married) are eligible for several tax breaks if they file their taxes jointly. Some married taxpayers, however, may choose to file separately for personal or professional reasons. This blog will cover the documents needed, eligibility requirements, and the advantages of different filing options, helping tax preparers assist their clients in selecting a filing status.
When should married clients file jointly or separately?
MFJ makes sense for most married taxpayers, but clients with unusual circumstances may want to compare and contrast MFJ vs. MFS to see which will work better for their unique financial situation. Some questions your clients may need to answer before deciding how to file are:
- Does a spouse pay or owe alimony or child support? If one spouse pays alimony or child support, filing separately could affect the deductions and credits available, as well as the taxable income for both parties.
- Did they buy or sell a home? Selling a home can have tax implications. When filing jointly (MFJ), you can exclude more capital gains from taxes than if you’re filing separately (MFS).
- Are they on a mortgage together or only one? If both spouses are on the mortgage, filing jointly (MFJ) may be more beneficial for combined income and deductions. If only one is responsible for the mortgage, it can affect their tax burden if filing separately.
- Does one spouse have any significant debt or capital gains? If one spouse has significant debt or capital gains, filing separately may help protect the other spouse from being liable.
- Did they have a baby? Having a baby can provide tax benefits like the Child Tax Credit, which is usually better for married couples filing jointly (MFJ).
- Were there a lot of out-of-pocket medical expenses? Medical expenses are deductible only if they exceed a specific percentage of adjusted gross income (AGI), and filing jointly may lower the AGI threshold, resulting in larger deductions.
What is needed to file jointly?
Your clients can file their taxes jointly or separately if they are legally married by December 31 of the tax year. This rule applies even if they live apart but aren’t legally separated. If one spouse has died during the tax year and the other hasn’t remarried, the surviving spouse can still file a joint return. Additionally, couples in legally recognized common-law marriages in their states can also choose to file as married.
What documents are required for clients who want to file jointly?
Your clients don’t need to bring any special documentation to file your taxes jointly. However, they will need to gather several essential documents, including both spouses’ Social Security numbers, W-2 forms from employers, and any 1099 forms for additional income. It’s important to keep documents for any deductible expenses, such as mortgage interest statements, property tax records, and receipts for medical expenses or charitable donations. Also, gather information about any tax credits you might be eligible for, like education expense statements or healthcare coverage details.
What are the benefits for clients filing jointly?
There are several advantages for your clients if they file jointly:
- Access to various tax credits including the Child Tax Credit, Dependent Care Credit, adoption credit, Earned Income Tax Credit, and American Opportunity and Lifetime Learning Education Tax Credits
- Tax-free exclusion, typically of US bond interest and Social Security benefits
- Credit for disabled or elderly status and deductions for some educational expenses, including student loan interest
- Deduction of certain retirement plan contributions and some losses
What are the disadvantages of married couples filing jointly?
The biggest risk of filing jointly is that both spouses share responsibility for the total tax liability, meaning one partner’s taxes can affect the other. One of these disadvantages is that medical deductions can be limited, as the taxpayers can only deduct expenses exceeding 7.5% of their adjusted gross income. In some cases, filing separately may allow a couple to deduct more medical expenses, especially if one spouse has a lower income.
Couples who are separated but not legally divorced might be hesitant to file jointly, but it may result in the loss of certain tax benefits.
What are the benefits for clients filing separately?
There are some limited circumstances where a married taxpayer may choose to file separately, including:
- Separation of tax liability between spouses, so a spouse is only responsible for the accuracy, completeness, and tax due on their own return
- Significant itemized deduction from one spouse that lowers their overall tax exposure
- State-by-state considerations of MFJ vs. MFS
What are the disadvantages of married couples filing separately?
The disadvantages to filling separately include:
- Filing separately will likely increase tax exposure and the amount of tax paid, compared to filing jointly
- If either of the spouses have any student loan debt, they will not be able to take that deduction for the interest
- Limited to a smaller retirement contribution deduction
- Losing access to various tax credits and benefits
- If one spouse has substantial medical expenses, filing separately may allow that spouse to deduct a larger portion of those expenses
- Some states have tax benefits that favor married couples filing separately
TaxSlayer Pro’s practice tax returns can help you gain a better understanding of how to help your clients file jointly or separately.
Additional filing options
There are a few other tax filing statuses, including single and head of household. A single filer is typically unmarried and without dependents, leading to lower income thresholds for tax brackets. If your client is unmarried but financially supporting a qualifying dependent and covering more than half of their household’s expenses, they might consider filing as head of household. Choosing this status may offer a higher standard deduction and a lower effective tax rate than filing as single. After getting married, your clients will be able to file as single again unless legally separated or divorced, or until the tax year following a spouse’s death.
