During tax season, many married couples have to decide between filing jointly or filing separately. “Married” in the tax world applies to people who are married and living together, as well as people who are separated and not living together. Also, if your spouse passes away, and you do not get remarried in that same year, you can file jointly for one last time. If you’re considering filing jointly, know that there are many benefits to doing so.
1. Lower tax rates
One of the main benefits of filing taxes jointly is the potential to receive a lower tax rate. When filing taxes jointly, couples are able to combine their income, deductions, and credits, which can help lower the amount of taxes owed. Depending on how much each spouse earns and how much they owe, filing jointly can result in a lower tax rate than if each spouse filed separately. Although, if both spouses earn similar income, there may not be a huge difference in tax rates.
2. Credit and deduction opportunities
When filing jointly, there are more tax benefits available than wouldn’t be if you were to file separately. Some examples of these include:
Earned Income Tax Credit (EITC)
This credit can provide a much-needed boost to those with lower incomes, allowing them to keep more of their hard-earned money. The EITC helps reduce the amount of taxes owed after deductions and credits are applied. Furthermore, since married couples filing jointly are allotted a larger standard deduction than those filing separately, they may be eligible for a higher credit. It is important to note that if a couple has children and earns an income below a certain level, they may benefit even more from the EITC.
Child and Dependent Care Credit (child must live with you for more than half the year)
Couples who incur expenses to take care of their dependents under 13 years old, their disabled spouse or another dependent in order to pursue employment or to search for it can take advantage of the Child and Dependent Care Credit. The amount of the credit depends on the amount of qualifying expenses and the couple’s income but can be as much as 35% of those expenses. Filing taxes jointly can be a great way for couples to take advantage of this credit and reduce their taxable income.
Lifetime Learning Credit
Another credit available to married couples who have filed jointly is the Lifetime Learning Credit. Eligible students can now take advantage of a credit that covers up to $2,000 of qualified educational expenses. With this amazing opportunity, couples can easily afford the expenses for higher education, either for themselves or their children. The Lifetime Learning Credit is an invaluable resource for those looking to obtain an education, and filing jointly can make it possible.
Adoption Credit
For couples filing their taxes jointly, another great opportunity is the adoption credit. The amount of this credit varies, but it can be as much as $6,890. This credit is designed to help offset the costs of adopting a child, such as travel expenses, legal fees, and other adoption-related costs. The adoption credit is available for the adoption of both domestic and foreign-born children. Couples should consult a tax professional for more information on eligibility requirements and claiming the credit on their taxes.
Standard deduction of $25,900
By filing jointly, couples can benefit from a double standard deduction of up to $12,950, allowing them to decrease their taxable income by twice the amount compared to those filing separately. Couples with higher incomes and who belong to higher tax brackets can greatly reduce their tax burden by taking advantage of this substantial deduction. If you need more information regarding credits and deductions, please visit irs.gov.
3. Retirement savings
Another major benefit of filing jointly is the ability to make IRA contributions. When filing joint taxes, both spouses are eligible to contribute to an IRA, which can help build retirement savings and potentially lower your taxable income. If one of the spouses does not have income for the year, the other can still make a contribution to their own IRA account. Additionally, the limit to contribute to an IRA is significantly higher compared to those who are married and filing separately.
4. Less stress
As you can see, filing taxes jointly with a spouse can provide a number of advantages. By filing taxes jointly, couples can enjoy the additional benefit of simplifying the process as they are able to complete the tax return together instead of needing to file two separate returns. This often leads to fewer errors, less paperwork, and less confusion.
What if I am married and still want to file separately?
Filing taxes jointly is generally seen as the best option for couples, but there are some circumstances where married filing separately may be beneficial. Married filing separately can be advantageous if one spouse has high medical costs, a large capital gain, or a significant deduction. Opting to file separately could provide a safeguard for couples against being liable for each other's tax blunders or liabilities, particularly when one partner has a track record of struggling to make prompt payments. Also, filing separately is a great option for couples who are planning to divorce soon because it helps avoid post-divorce complications. Some couples even decide to file on their own because they prefer to keep all of their finances separate. Consult a tax professional before deciding to file taxes separately to ensure it is the best option for you and your spouse.