⏳Tax filing window for 2023 is now open. Last Date: April 16 ⏰
So, you've tied the knot, and now you're facing that annual head-scratcher: to file jointly or separately? When figuring out how to do your federal income tax return as a married couple, you have two choices: file jointly or file separately. Both have pros and cons, so it's smart to know the differences before you make up your mind.
Knowing the impact of these choices is key because it can really affect how much you owe in taxes. Consider things like income differences, eligible deductions, and potential credits to figure out which filing status works best for you.
If you opt for a joint tax return with your spouse, it comes with a few benefits. When you file taxes together, both partners are on the hook for any taxes or penalties, and you get one joint refund. It's the easier way for a couple to tackle taxes since you only deal with one return.
Joint filers get to claim the most substantial standard deductions every year, which allows them to deduct a significant portion of their income. This, in turn, lowers their tax liability. For the 2023 tax year, the IRS allows joint filers to take $27,700 as a standard deduction. Compared to the $13,850 that both single and separate filers get, it’s quite a big difference.
Joint filers are also eligible for a lot more tax credits. Tax credits are like discounts on your income taxes – they directly reduce how much you have to pay. If you’re filing jointly, you and your spouse could claim credits like:
Apart from tax credits, there are certain deductions only joint filers can take without limitations. The student loan interest deduction is one of them. This deduction lets taxpayers deduct up to $2,500 of their student loan interest. Given that Congress restarted student loan payments, this is a deduction you will want to take advantage of.
The other deduction is writing off rental losses. If you and your spouse lived together at any point in the tax year and filed separate returns, you can't claim deductions for losses from rental real estate with active participation. However, if you were married but haven't lived together throughout the tax year, you could deduct up to $12,500 of losses. If you file jointly, the maximum deduction for losses is $25,000.
If you and your partner decide to file separate tax returns and one of you goes for itemized deductions, the other can't opt for the standard deduction. It's a package deal – you need to itemize, even if it means a higher tax bill.
Say you're a couple living in a "community property state" – think Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. When it comes to deciding whether to file taxes separately, there's another rule to follow.
In these states, it's like a 50-50 split on income and deductions between spouses unless you've lived apart all year. So, you have to report both your personal income and half of your spouse's income on your return.
Whether you can file taxes together actually depends on your relationship status on the last day of the tax year. If you decide to tie the knot on December 31, 2023, you and your partner can team up for a joint tax return for that year. But if you're officially divorced by the end of the year, you have to fly solo.
If your spouse passes away during the year and you haven't remarried, you can still be considered a joint filer for that year. This also applies if you and your partner haven't legally separated yet but are living apart.
It may seem like filing jointly is the clear-cut best option for every taxpayer. But this isn’t always the case. There are a few situations where you may want to file separately.
If you're running a small business or hustling as a freelancer, your tax situation is a whole different ball game compared to the W-2 employees. Because you're not just paying income tax on what you make, you're also on the hook for self-employment taxes.
Since your taxes aren't automatically deducted from your paycheck, you're also in charge of making estimated quarterly tax payments to cover what you owe. So if you've been slacking on that, it might add some extra cash to your joint tax bill or impact your refund. Splitting your taxes from your spouse can mess with claiming certain credits or deductions, but it's also a way to keep your overall tax bill on the lower side.
You can use a 1099 tax calculator to help you find business deductions that can directly reduce your SE tax liability.
Another reason it might be a good idea to file separately is if one of you has a lot of out-of-pocket medical expenses. Generally, taxpayers can deduct medical expenses that exceed 7.5% of their AGI (Adjusted Gross Income). So filing separately can help you reduce your AGI and claim more expenses on your return.
It’s highly likely that you or your spouse have student loans to be paid off. In a lot of cases, these repayment programs depend on your income. So, without adding your spouse’s income to your return, you can potentially reduce your monthly payment amount.
The decision to file jointly or separately is a highly subjective one. One way to decide is to do your returns both ways and see which gives you the better numbers. But this can be time-consuming.
If you’re self-employed, you can just link your expenses to FlyFin and find out which filing option will be the best choice. A.I. will also find all your business deductions to lower your SE tax, and CPAs offer unlimited tax support with answering questions and even preparing and filing your taxes.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.