Have That Talk: Are You Joint or Separate at Tax Time?
NEW YORK (TheStreet) -- Married couples have the option to file a joint return or file separately. Generally it is better to file a joint return. Separate filings usually result in the same or greater combined tax liability. But in some cases it may pay to file separately.
Because of the 7.5% of Adjusted Gross Income exclusion for medical expenses and 2% exclusion for miscellaneous deductions, if one spouse has excessive deductions in either category, applying the percentage exclusion to a lower separate AGI could result in a greater deduction and less combined tax. If you have children under age 17, the total Child Tax Credit allowed on separate returns could be more than the credit you can claim on a joint return.
You must consider the state tax consequences when determining how to file. Usually you must use the same filing status on your resident and nonresident state returns that you use on your federal return. And filing separately may cost $150 more in federal tax, but it may save $300 in state tax, as is often the case in my former home state of New Jersey.
In certain situations you can't claim a specific tax benefit or you will get a reduced benefit if you file separate federal returns. If you file separately and one spouse itemizes, the other spouse must also itemize -- even if that spouse's deductions are less than the $5,950 Standard Deduction. The Earned Income and Child Care credits and the various education tax benefits are not available, and more of your Social Security benefits may be taxed if you file separately.
Be sure to calculate the Alternative Minimum Tax when comparing your filing options. You may pay less combined "regular" income tax by filing separately, but one or both spouses may end up a victim of AMT.