Taxing matters: Marriage and taxes

Wednesday, March 21, 2007

By Dave Cohen

The filing status you claim on your tax return depends on your marital status on the last day of the tax year.

In other words if you married on December 31st, you would be considered married for the entire calendar year for tax purposes. In some infrequent circumstances (involving children), a married couple may be considered unmarried for tax purposes.

Married couples may file together or on separate returns. Since a joint return may combine different kinds of income for either person, a small business owner could file jointly with his/her spouse who is an employee receiving a W-2.

Different forms of income (small business, rental property, wages, interest and dividends) may not dictate the choice about how to file. Married couples that file together are individually responsible for tax due on their return; any tax due may be collected from either of them.

Couples who file separately are responsible only for tax due on their own tax return.

Generally, a significant difference in spouses’ income levels indicates that a joint return may result in the least tax for the couple. Some tax credits and deductions are not available to married couples filing separately.

 A separate return is not eligible for education credits, the student loan interest deduction, the tuition and fees deduction and the earned income credit. A separate return can deduct a smaller net capital loss (e.g. loss on the sale of stock) from other income for the year.

A greater portion of Social Security benefits will be taxable on a separate tax return than on a joint return for a married couple.

On the other hand, since some available deductions are limited by income level, separate returns may be desirable in pursuit of the least tax for the couple.

For instance, one spouse having very large medical expenses or business expenses of an employee, with the other spouse having little or none of these expenses, could point to the desirability of separate returns to maximize total deductions. 

A separate return could be desirable in order to be responsible only for one’s own tax accounting, and tax liability, regardless of tax savings.

Filing a joint return is a binding decision. You may not change or amend your tax return to file separately after filing a joint return.

You may amend separate returns, however, after filing, to combine them to file a joint return.

The decision to file joint or separate returns is straightforward for most married couples, but in some instances other nontax-related factors may come into play.
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Taxing matters: Marriage and taxes | Planet JH News Article: Business

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