It is tax time and a frequent question I get is – Can I file married but separately for tax purposes?

The easy answer is yes, but as always there are issues to consider what status is the best one to use. This article will cover the various issues that need to be looked at before making that decision.

When I get this question, I usually ask why the client wants to file separately since there are very good reasons for not using this filing status. I get numerous reasons for wanting to file separately as it relates to the income and expenses of the other spouse being questionable by the client sitting in front of me and sometimes the client thinks the tax bill will be lower if they file separately.

When you are married the joint filing status provides you with all the deductions and credits that the tax law provides to us whereas the filing status of separate has quite a few disadvantages with respect to deductions and credits.

There are also some limited times when the filing status of Head of Household can be used for someone who is married but can be “considered unmarried” at the end of the year. So let’s look at each filing status and see how you fit into these categories.

Head of Household Status (HOH)

This filing status is available to someone who is married but as of the last day of the year is “considered unmarried”. To fit this category, you must:

  • File a separate return

  • Paid more than half the cost of keeping up your home for the tax year

  • Your spouse did not live in the home during the last six months of the year

  • Your home was the principal place of abode of your child, stepchild, adopted child or foster child for more than half of the year, AND

  • You can claim the child as a dependent (unless the other parent can claim the child under the rules for divorced or separate parents)

If your spouse was a non-resident alien at any time during the year, then you are considered unmarried and eligible for HOH filing status unless you make an election to treat your spouse as a resident alien.

Two important issues are in the above rules. First is that only children can be the qualifying dependent for this status, you cannot use other relatives as the qualifying person. Second, the cost of keeping up a home includes rent, property taxes, mortgage interest, food consumed in the home, utilities, repairs, and other household expenses. All other expenses are excluded from this calculation.

Married Filing Separately

When you use this status you are not liable for the accuracy of your spouse’s return or for the payment of their taxes. If the other spouse owes on their return, owes child support or other federal debt, your tax refund is not at risk. If you have concerns about the income that your spouse is reporting on their return and do not want to be liable for any taxes, penalties, or interest on such income, you might want to file separately. 

In some cases, you might pay less tax as a couple by filing separately. This could occur when one spouse has large itemized deductions subject to AGI limits (medical expenses or employee expenses) that may result in a lower tax by filing separately.

Despite the above advantages, there are a number of disadvantages when you file separately:

  • The tax rate applied to taxable income is usually higher than on a joint filed return

  • The standard deduction is half the amount allowed on a joint return

  • If one spouse itemizes the other spouse cannot claim the standard deduction

  • The exemption amount for figuring the AMT is half of that allowed for filing joint

  • Capital loss deduction limit is $1,500 (not the $3,000 limit allowed on a joint return)

  • First-time homebuyer credit is limited to $4,000 ($3,250 for long-time residents)

  • There are several deductions and credits that are reduced at lower income levels

    • Deduction for personal exemptions

    • Itemized deductions

    • Child tax credit

    • Retirement savings contributions credit

You are also ineligible for the following credits:

  1. Child and dependent care expenses in most cases

  2. Earned income credit

  3. Exclusion or credit for adoption expenses, in most cases

  4. Education credits, student loan interest, and tuition and fees deduction

  5. Cannot exclude interest income from US Savings bonds used for education

When you are figuring the items to include on Schedule A for itemized deductions, it will be important to identify who is legally responsible for the item being paid and claimed. For instance, if one spouse owns the title to the house and has the mortgage, only that spouse may claim the mortgage interest and property taxes, even though the other spouse may have the greater income which is being used to pay these items.

If the spouses lived together at any time during the tax year, the following issues arise:

  1. Neither spouse is eligible for the credit for the elderly or disabled

  2. Must include up to 85% of social security or equivalent railroad retirement benefits in income

  3. Cannot convert IRA amounts to a Roth IRA

If you are considering using the Married Filing Separately status, I would suggest you prepare the returns under both separate and joint statuses to see what the difference is in tax liability before making that decision to file separately. Even though the tax liability difference may be significant, you may still want to file separate returns to keep away from the tax liability and tax liens that could be filed against your assets that could result from actions by your spouse on that return.

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