From the Patrick Parker Realty Tax Season Blog Series:
Save on Taxes: Filing Seperately As A Married Couple
The Internal Revenue Service considers wedded taxpayers married if they are legally married under state law, live together in a state-recognized common-law marriage, or are separated but have no separation maintenance or final divorce decree as of the end of the tax year.
Of the 56 million tax returns married couples filed in 2009, the latest year for which the IRS has published statistics (at the time of writing), 4.3 percent belonged to twosomes who filed separately. These partners reported individual income and expenses on individual tax returns. They had to agree on either itemizing expenses or using the standard deduction. By filing separately, their similar incomes, miscellaneous deductions or medical expenses likely helped them save taxes.
Filing separately with similar incomes
A couple may pay the IRS less by filing separately when both spouses work and earn about the same amount. When they compare the tax due amount under both joint and separate filing statuses, they may discover that combining their earnings puts them into a higher tax bracket. Their savings depends on a variety of other factors, however, including their investment situation and whether they have children. The “married filing separately” status cuts the deductions for IRA contributions and eliminates child tax credits, among other tax breaks.
Using miscellaneous deductions by filing separately
Miscellaneous deductions can lower taxable income, but in order to enter them on Schedule A, they must add up to more than 2 percent of adjusted gross income (AGI). Spouses with union dues, job-search costs, tax-preparation fees and unreimbursed business expenses may find their miscellaneous deductions don’t qualify when their higher combined income raises their AGI. A spouse who travels frequently for business could rack up a sizable tally in airline fees for baggage and itinerary changes that makes the miscellaneous deduction worth pursuing.
Filing separately to save with unforeseen expenses
Adjusted gross income also determines if a couple can use unreimbursed health care costs and casualty losses on Schedule A to save taxes. Unless out-of-pocket medical expenses exceed 10 percent of AGI, they don’t qualify as a deduction. Casualty losses must also total more than 10 percent of AGI. The spouse with the loss or substantial medical outlay calculates deductibility against his own, lower AGI when he and his partner file separate returns. When one spouse can lower taxable income this way, married filing separately might trim a couple’s overall tax burden.
RELATED: The Affordable Care Act and Taxes
There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.
Filing separately to guard the future
When you don’t want to be liable for your partner’s tax bill, choosing the married-filing-separately status offers financial protection: the IRS won’t apply your refund to your spouse’s balance due. Separate returns make sense to prevent the IRS from seizing a spouse’s refund when the other has fallen behind on child support payments.
Couples in the process of divorcing may shun joint returns to avoid post-divorce complications with the IRS, while a spouse who questions her partner’s tax ethics may feel more comfortable living a separate tax life.
Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.
The Patrick Parker Realty Tax Season Blog Series will cover many topics as they relate to real estate and increasing your income tax refund. Such topics will include Home Ownership Tax Breaks, Hidden Tax Deductions, Deductions on Mortgage Interest, Reporting on the Sale of Your Home, Home Purchase Tax Credits and more. In addition, our Blog Series will explore Tax Incentives as they relate to major transitions and lifestyles; Marriage, Birth, Divorce, Death of Spouse, Health Insurance, Caretaking of Dependents, Business Owners, Commuters and more.
Check in to The Patrick Parker Realty Blog each Tuesday, Thursday and Saturday through Tax Day for new posts. You can also follow The Patrick Parker Realty Tax Season Blog Series on Facebook and Twitter using #taxseasonblog.
For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.