Just Married: Should We File Taxes Jointly or Separately?

If you just got married, congratulations!  

And now, deal with the bureaucracy… 

It isn’t that bad, really.  Marriage used to come with a significant penalty if you and your spouse both earned an income.  The tax code was used to benefit single-income families. Now, much of that disparity has gone away, and you are better off filing a joint tax return.  

There are some situations where it makes sense to file separately, but these are rarer and more technical.  

The best rule of thumb is to file a joint return.  If you think you may have a situation where filing separately makes sense, then let’s talk; we can help you figure this out.   

Why you should file a joint tax return

The IRS encourages couples to file a joint tax return, and there are several benefits to doing so.  

First, as a couple, you qualify for twice the standard deduction and twice the capital loss deduction.  

The standard deduction reduces your income by the amount of the deduction.  If you are single or married, filing separately, the standard deduction for 2020 is $12,400; as a couple, that amount is $24,800.  If you both earn enough to claim the standard deduction on your own, then filing jointly won’t make a difference.  

However, if one of you leaves your job (voluntarily or involuntarily), then as a couple, you can reduce the remaining income by $24,800, so you retain that benefit.  

The capital loss deduction limits the amount of capital loss you can use to reduce your income.  As a single person or married filing separately, the total capital loss deduction you can claim is $1,500; a married couple can claim $3,000.  

If you both have enough losses to claim the $1,500, there is no benefit to filing jointly.  But if only one of you has losses, then as a couple, you can claim the combined $3,000 benefit.  

Couples filing jointly also qualify for higher income thresholds for some credits and in some cases qualify for additional credits or higher deductions.  These include: 

  • Earned Income Tax Credit. 
  • American Opportunity and Lifetime Learning Education Tax Credits
  • Child and Dependent Care Tax Credit
  • Adoption expenses. 
  • Tuition and fees deduction 
  • Student loan interest deduction
  • Tax-free exclusion of U.S. bond interest
  • Tax-free exclusion of Social Security benefits

If you are married and file separately this will exclude you from these credits and deductions. 

However, there are some situations in which filing separately can help you.

Many reasons center on lack of trust in the marriage and avoiding each other’s liabilities.  For example, you may elect to file separately if:   

  • You lack spousal consent: To file jointly, you must both sign the return.  If your spouse cannot or will not sign the return for some reason, you should file separately. 
  • You are concerned about your spouse’s tax liability: If you earn much less than your spouse and you file a joint return, you are both on the hook for the joint tax bill.  If you do not want responsibility for this tax bill, you would have to file separately.
  • The IRS is collecting bad debts, taxes, or penalties from your spouse and you do not want to have your income impacted.  The IRS can collect tax debts or penalties from either of you – so there may be reasons to keep your responsibilities separated.
  • You are getting divorced or separated: As you are separating, it may make sense to keep your tax filings separate.  This way, you avoid a joint tax bill, joint refund, and any joint liabilities.  

Sometimes there can be a tax benefit, but this is rare. 

One example of a tax benefit is if one of you faces high out-of-pocket medical expenses.  Tax legislation allows you to deduct only the amount that exceeds 7.5% of your adjusted gross income.  You or your spouse may qualify for a significant benefit based on their or your income alone, even if you do not qualify together.  

If you have a $15,000 bill, for example, and you earn $75,000, then the $15,000 would be 20% of your income, and you would qualify for a $9,375 deduction.  If you and your spouse earn $202,000 or more together, then you would no longer qualify for any deduction at all.   

Making these calculations can be tricky, and you would want to weigh this against any benefit that you get from filing jointly.  

What about the marriage penalty?

There used to be a bias built into the tax code against two-income married couples.  Deductions, limits, and credits did not always double.  Because of this, many two-income couples would lose benefits that they claimed individually. 

This penalty has mostly gone away, and there is not more of a bias toward married couples.  The actual benefit or penalty now depends heavily on your circumstance.  In general, now, you will be better off filing jointly. 

Would you like some help?

If you are a client and would like to book a consultation, call us at +1 (212) 382-3939 or contact us here to set up a time.

If you aren’t a client, why not? We can take care of your accounting, bookkeeping, tax, and CFO needs so that you don’t have to worry about any of them. Interested? Contact us here to set up a no-obligation consultation.

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Jeff Coyle, CPA

Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting.
Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy.
Filing quarterly and annual taxes.
Audit support.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004.  After a career of public accounting and general management, Jody knows the value of good financials.  Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles.  His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies.  His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller.  He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.  

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

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