Are you wondering, “Should I file single or married?” Well, it depends. But remember, you can be married but filing single under some circumstances.
The Bureau of Labor Statistics reports that by 2020, nearly half of U.S. marriages were composed of dual-career couples. When it comes to couples with children, that number rises to 63 percent. With children or without, the benefits of a dual-career household – including greater financial stability and tax breaks – are significant. As a result, single vs. married taxes can look very different.
Even so, situations exist where the best option is to file your taxes separately, rather than jointly. And you need to learn when to file married or single. Therefore, before you prepare your 2021 taxes, consider the effects of each tax filing status – married filing jointly or married filing separately – in light of your family’s current situation.
Married Filing Jointly (MFJ)
Being married and filing jointly has its fair share of benefits.
1. Lower Tax Bracket
If one spouse's income is significantly higher than the other (or vice versa) in 2021, by filing jointly, you may qualify for a lower federal income tax bracket than if you file separately. A lower tax bracket means your income is subject to a lower tax rate. Consequently, you might receive a refund you would not receive if you adopt the married filing single filing status.
To decide between the two options, crunch some numbers to determine which status provides the biggest tax savings. Visit IRS.gov and search for Tax Forms and Instructions to draw the comparison.
2. Tax Credits and Deductions
Many tax credits and deductions are available to those couples who file a joint return in 2021, but not to those couples who file separately. These credits and deductions include the child and dependent care credit, earned income credit, adoption expenses credit, education credit and premium tax credit.
For a couple who takes a standard deduction and files jointly, your standard deduction is $25,100 for the tax year 2021. If you file separately the deduction is $12,550.
3. Capital Loss Deduction
When filing a joint return in 2021, the maximum capital loss deduction you can claim is $3,000. In contrast, when you file separately, the limit is just $1,500. The additional $1,500 deduction you receive when filing jointly may amount to a sizable reduction in your overall tax bill.
4. Retirement Account Contributions Deduction
Your modified AGI affects the amount of your deduction for your retirement plan at work. If you file jointly in 2021, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is more than $105,000 but less than $125,000. However, if you file separately, your IRA contribution is phased out when your adjusted gross income is $10,000 or less.
5. Convenience and Expense
Filing one joint return as a married couple is infinitely simpler and less costly than filing two separate returns. One reason is that if one spouse itemizes deductions, the other spouse must do so. What's more, your tax preparation fees and time commitment to the process double as well.
Married Filing Separately
It is worth noting that the married but filing single status also offers its share of advantages
1. Medical Bills Deduction
You can deduct medical expenses if they exceed 7.5 percent of your adjusted gross income. So, if you have a lower income than your spouse, filing separately may allow you to take a deduction for high out-of-pocket medical bills.
For instance, assume your combined adjusted gross income is $235,000 and your personal out-of-pocket medical expenses total $11,500, but your spouse had none. In this case, you couldn't deduct the expenses if you file jointly since the expenses are less than 7.5 percent of your adjusted gross income. If, however, your personal income is $32,000, you could deduct the expenses if you file a separate return.
2. Tax Liabilities
When you select the married filing jointly option, each spouse is responsible for the tax bill of the other partner. You and your spouse receive the many benefits of this filing status, such as tax credits and deductions, but you share the tax obligations as well. In the event you anticipate a divorce, even a separation, odds are you're not comfortable with that prospect.
Likewise, if you believe your spouse may be guilty of tax evasion or if your spouse's income is substantially higher than your own, consider the married filing separately option.
3. Child Support Liability
If your spouse owes child support, filing separately can prevent tax refund seizure or the IRS from taking your tax refund to cover the arrears. By filing separately, you can protect your tax refund from your partner's creditor claims.
4. Separate Property and Assets
If the value of your assets is considerably greater than that of your partner and you want to hold those assets separately, it's essential that you use the married filing separately tax status. The married filing separately status might also be preferable if you have assets you want to pass to children of a prior marriage.
5. Pass-Through Deduction Phase-Out
When either spouse receives qualified business income, that partner might benefit from the associated pass-through deduction, which may allow that business owner to deduct 20 percent of his income.
For example, if your income is greater than that of your spouse and his income is under $164,900, the majority of which is qualified business income, you may lower your overall tax liability by filing separately.
Read More: How to Calculate Self Employed Income Tax
Making Your Decision
The benefits of a dual-career household – including greater financial stability and tax breaks – are significant. Even so, a situation may exist when adopting the married filing separately tax status is the best option. Before you prepare your 2021 tax return, consider both options – married filing jointly and married filing separately – to decide which is best for your family.
- BLS.Gov: EMPLOYMENT CHARACTERISTICS OF FAMILIES — 2020
- CNBC: If you’re married, here’s how to choose the filing status that will save you the most on your taxes
- IRS.Gov: Forms, Instructions & Publications
- IRS.Gov: Filing Status
- IRS.Gov: American Opportunity Tax Credit
- IRS.Gov: IRS provides tax inflation adjustments for tax year 2021
- Bankrate: How to deduct stock losses from your taxes
- IRS.Gov: Publication 590-A (2020), Contributions to Individual Retirement Arrangements (IRAs)
- IRS.Gov: Topic No. 502 Medical and Dental Expenses
- Personal Capital: Married Filing Separately: When Does It Make Sense?
- Nolo: Can the IRS take my tax refund for child support arrears?
- IRS.Gov: Publication 555 Community Property
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.