5 Benefits Married Taxpayers Lose by Filing Separately
If you are married, you have the choice: file jointly or separately. There are many benefits that married couples receive by filing jointly - that you forgo if you decide to file separately. First, you need to understand the definition of married according to the IRS. Basically, if you were legally married, meaning that there were no legal divorce proceedings before December 31, 2014, you are legally married. This is true for same sex and co-ed couples (if your state recognizes same sex marriages).
1. Lose Many Deductions and Credits
Deductions and credits are what make taxes more affordable, but if you file separately from your spouse, you can lose many of these money saving tactics. This includes the ability to take the child and dependent care credit, which is the credit you are able to take if you pay someone to watch your child or other dependent while you work. You also lose the ability to take a tuition or education credit, and earned income credit. Other less used credits, but those that could have a significant impact on your taxes include the adoption credit, and elderly and disabled credit.
2. Claiming Itemized Deductions
Every taxpayer has the choice of taking the standard deduction of $6,300 (per adult), or itemizing their deductions in order to maximize their savings. If you do not own a home, give money to charity, pay property taxes, have unreimbursed medical expenses or unreimbursed employee expenses, the standard deduction makes sense. If you do have these deductions, however, you might be better off itemizing your deductions, but this means your spouse must do the same. If it does not benefit his taxes to do this - you could wind up losing out.
3. Lower Child Tax Credit
If you are married with children and decide to file separately, you could lose out on the maximum amount of the child tax credit that you are eligible to receive. This tax credit increases at different income increments, which means if you file separately, your income is lower in the eyes of the IRS. It pays to determine if you will gain a higher child tax credit if you file together and if it saves you more money in the long run.
4. Offsetting Capital Gains
If either your or your spouse has a large capital gain, it can significantly impact the amount of taxes you may owe. If one spouse has a gain, while the other has a loss, that loss can be used to offset the gain, if you file jointly. If you choose to file separate, however, you will be able to claim your loss and take the lower tax liability, while your spouse will have to claim his entire gain and be hit with higher taxes. In the end, it works out that you will pay more taxes if you file separately in a case like this.
5. Lower IRA Deductions
If you contribute to an IRA, you can generally use that as a tax deduction. If you choose to file separate from your spouse, however, you lose out on some of that benefit. This mainly pertains to couples where one spouse works and the other does not. If you file separately, the non-working spouse cannot contribute to an IRA and claim it on their taxes. That same spouse, however, can claim the contribution to the IRA if you choose to file jointly.
There are many benefits of filing your taxes married filing jointly. In very few cases, the benefit is the other way around, but the IRS makes it so that you receive more credits and deductions by filing together. If you were married as of the last day of 2014, you are eligible to file jointly and take advantage of these benefits.