Choosing Your Tax Return Filing Status

For Immediate Release                                 

Contact: Gigi Thompson Jarvis
gjarvis@naea.org, 202.822.6232, x11

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Choosing Your Tax Return Filing Status

Married Couples Do Have a Choice

WASHINGTON, DC (February 16, 2012) --  Conventional wisdom among taxpayers has long held that married couples are better off filing their tax returns under the “Married Filing Jointly” (MFJ) status rather than using an alternative filing status for married couples, “Married Filing Separately” (MFS). Like most things in life, however, it depends on the specific circumstances. To ensure they’re not paying any more than they have to, many taxpayers run the numbers both ways, to see if one filing status reduces their tax burden more than the other. The IRS actually encourages you to choose the one that saves you the most on taxes – whoever said they don’t have a heart!

If you have a young family, IRS “special rules” apply to those filing federal returns separately that are usually not good for your situation. Generally, those filing separately can’t take the credit for child and dependent care, the earned income tax credit, or the exclusion or credit for adoption. Separate filers may not claim the education credit nor deduct the interest from student loans, nor take the tuition and fees deduction. They cannot exclude from income the interest from savings bonds used for higher education expenses, and the first-time homebuyer credit is only $4,000, as opposed to $8,000 for those filing jointly. The beginning phase-out level (adjusted gross income) for retirement savings credit is one half of the amount for MFJ; however, there is a sliding scale phase-out, depending on the number of dependents that qualify for the child tax credit. Since tax laws are known to contain “exceptions to the rule,” if you are in doubt as to any exceptions that may apply to your situation, you would be wise to consult a tax expert – an enrolled agent.

Those IRS “special rules” make it appear that married couples are better off filing jointly, but again, it depends on your situation. If you have high medical bills for the year, you may be able to claim medical deductions filing separately that you would be unable to claim filing jointly if your adjusted gross income on an MFS return is lower than it would be on a joint return. And it’s not uncommon for you and your spouse to fall into a lower tax bracket filing separately than you would filing jointly, especially if none of the disallowed credits mentioned above applies to your situation. Married Filing Jointly requires you report your combined income and your combined allowable expenses. Two people with good incomes could fall into the 25 percent tax bracket on their own, and be boosted up to 28 percent when filing jointly.

“Even if you do fall into a lower tax bracket filing separately, you’ll still probably come out better filing federal returns jointly,” said Lynn Schmidt, EA of Lynco Financial and Tax Services in Winter Haven, FL. “Your exemption amount for figuring the alternative minimum tax when filing MFS will be half of what it would be filing MFJ. Your capital loss deduction rate is $1,500 instead of $3,000. And, as a separate filer you can only claim the standard deduction if neither you nor your spouse itemizes deductions. If neither of you itemizes, you can claim the standard deduction, but your basic standard deduction is half of what it would be if you were filing jointly. However, state tax rules can change the equation, and sometimes favor filing separately.”

A licensed tax practitioner who is familiar with the numerous rules that affect filing status will be able to tell you which filing status is most advantageous for you.

About Enrolled Agents

Enrolled agents (EAs) are America’s tax experts. They are the only federally-licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. While attorneys and certified public accountants are also licensed, only enrolled agents specialize exclusively in taxes. Enrolled agents are required to complete many hours of continuing education each year to ensure they are up-to-date on the constantly changing tax code and must abide by a code of ethics. To locate an enrolled agent in your area, go to the “Find an Enrolled Agent” directory at www.naea.org.