1.3 Filing Separately Instead of Jointly

Filing a joint return saves taxes for a married couple where one spouse earns all, or substantially all, of the taxable income. If both you and your spouse earn taxable income, you should figure your tax on joint and separate returns to determine which method provides the lower tax.

Although your tax rate (1.2) will generally be higher on a separate return, filing separately may provide an overall tax savings (for both of you together) where filing separately allows you to claim more deductions. On separate returns, larger amounts of medical expenses, casualty losses, or miscellaneous deductions may be deductible because lower adjusted gross income floors apply. Unless one spouse earns substantially more than the other, separate and joint tax rates are likely to be the same, regardless of the type of returns filed. The Example on page 12 illustrates how filing separately can save you taxes.

Suspicious of your spouse’s tax reporting?

If you suspect that your spouse is evading taxes and may be liable on a joint return, you may want to file a separate return. By filing separately, you avoid liability for unpaid taxes due on a joint return, plus interest and penalties.

If you do file jointly and the IRS tries to collect tax due on the joint return from you personally, you may be able to avoid liability under the innocent spouse rules (1.7). If you are no longer married to or are separated from the person with whom you jointly filed, you may be able to elect separate liability treatment (1.8).

Standard deduction restriction on separate returns.

Keep in mind that if you and your spouse file separately, both must either itemize or claim the standard deduction, which is $5,950 in 2012 for married persons filing separately (13.3). Thus, if your spouse itemizes deductions on Schedule A of Form 1040, your standard deduction is zero; you do not have the option of claiming the $5,950 standard deduction and must itemize your deductions on Schedule A even if they are much less than $5,950.

Example

Mike Palmer’s 2012 adjusted gross income (AGI) is $84,775, and Fran, his wife, has AGI of $60,000. Neither of them has dependents. Mike has unreimbursed medical expenses of $7,984 (17.2) before taking into account the 7.5% of AGI floor (17.1); Fran’s unreimbursed medical expenses are $1,000. A tornado damaged property owned by Mike in his own name, and he has a casualty loss of $20,078 prior to taking into account the $100 floor and the 10% of AGI floor (18.13). Mike has unreimbursed miscellaneous expenses of $2,996 and Fran has $500 prior to taking into account the 2% of AGI floor (19.1). Mike has deductible mortgage interest expenses of $5,000 and Fran has $1,900. Mike’s deductible state and local taxes are $2,399; Fran’s are $1,000. If they file separately and Mike itemizes deductions, Fran must also itemize even though the standard deduction would give her a larger deduction (13.2).

As the example worksheet below shows, filing separate returns saves Mike and Fran an overall $2,081, because they can deduct more on separate returns. If they filed jointly, their deductible casualty loss and miscellaneous expenses would be substantially lower and they would receive no deduction for medical expenses because it would be eliminated by the adjusted gross income floor.

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Joint return required for certain benefits.

Also be aware that certain tax benefits may be claimed by married persons only if they file jointly.

If you want to take advantage of the $25,000 rental loss allowance (10.2) or the credit for the elderly and disabled (Chapter 34), you must file jointly unless you live apart for the whole year. You must file jointly to claim an IRA deduction for a nonworking spouse (8.3). Roth IRA contributions generally may not be made by a married person filing separately because of an extremely low phase-out range (8.20). A joint return is required to claim the American Opportunity credit or lifetime learning credit (33.7), the tuition and fees deduction (33.13), or the deduction for student loan interest (33.14). You must file jointly to claim the dependent care credit or the earned income credit (Chapter 25), unless you live apart for the last six months of the year.

Other restrictions may increase your tax if you file a separate return. In figuring whether you are subject to alternative minimum tax (AMT), your exemption amount is half that allowed to a joint return filer (23.1). Furthermore, if you receive Social Security benefits, 85% of your benefits are generally subject to tax on a separate return; see Chapter 34.