Married taxpayers might want to consider the pros and cons of filing their income tax returns using “married filing separately” status versus filing jointly. Most aren’t sure of how to split their deductions and file separately. The best way to ascertain whether this might be advantageous is to calculate your taxes both ways and then choose the option that results in the lowest combined tax liability. To split your deductions, you must know what the tax law allows and does not allow.
Gather your financial records. If you and your spouse use some of the same credit cards or share bank accounts, you'll need to have copies of those records for both you and your spouse. Don't assume you will be able to obtain a copy from your spouse at a later date if the Internal Revenue Service (IRS) audits you.
Decide who will claim your eligible dependents. You are permitted to divide dependent exemptions between you as you see fit. Keep in mind that whoever claims a dependent also claims that child’s medical and child care expenses. For example, if you have three children and one of them has substantially more medical or child care expenses, you might claim that child while your spouse claims the other two children to ensure that your deductions are roughly equal. Unlike expenses related to a dependent, however, you and your spouse can split mortgage interest, property taxes and charitable items any way you wish, provided you were both liable for the expenses when they were paid.
Review all of your itemized deductions. The IRS requires that if one spouse itemizes, both must do so. You and your spouse can both take the standard deduction instead of itemizing, as long as you are both entitled to use this option. This is usually the deal breaker for couples who are thinking about filing separately because most don't have enough itemized deductions to split between two tax returns.
Determine how you will divide other deductions, such as capital gains or losses and business income and expenses. If only one spouse is involved in a business enterprise, that spouse should be the one who reports the income and expenses.
Familiarize yourself with the community property laws in your state. Even if your state does not impose income tax, living in a community property state will affect the way you divide income and expenses when you file separate federal returns. Texas, Wisconsin, Idaho, Nevada, California, Louisiana, Arizona, Washington and New Mexico are community property states. Residents of those states must differentiate between separate income and community income, and those numbers must be reflected on your tax returns.
Create "dummy" tax returns to decide whether you should file jointly or separately and how your dependents and deductible expenses should be split. Compare the results of filing both ways. In most cases, there will be a significant tax advantage to filing jointly. Keep in mind, too, that both you and your spouse are equally liable for additional taxes the IRS assesses in an audit, except as otherwise provided under your state's community property laws.
- Internal Revenue Service: Publication 555 Community Property
- IRS. "Section 1. Basic Principles of Community Property Law." Accessed April 29, 2020.
- IRS. "Publication 5307 Tax Reform Basics for Individuals and Families." Pages 1 and 7. Accessed April 29, 2020.
- IRS. "Exemptions, Standard Deduction, and Filing Information For Use in Preparing 2017 Returns." Page 11. Accessed April 29, 2020.
- IRS. "Dependents 3." Accessed April 29, 2020.
- IRS. "Topic No. 501 Should I Itemize?" Accessed April 29, 2020.
- IRS. "Publication 555 (03/2020), Community Property." Accessed April 29, 2020.
Cheri Dohnal has written professionally since 1978. Her publishing credits include "The EA Journal," Rootsweb Review, Historysavers, eHow and numerous print publications. A graduate of Texas Tech University, Dohnal has enjoyed a successful parallel career as a licensed tax accountant and published book author.