Ray Martin, CBS Moneywatch, February 29, 2016:
Preparing your tax return requires you to make all sorts of decisions regarding ways to get the optimal results. One of the more vexing choices faces couples: Should they file jointly or separately?
Any married couple (or those living together in a state-recognized common-law marriage or who are still married but waiting a final divorce decree) can elect to file jointly or separately. But if you’re in those categories and choose to file separate tax returns, both taxpayers have to agree to do so, and both have to agree to either itemize deductions on Schedule A or claim the standard deduction.
According to the most recent IRS data, only about 5 percent of all married taxpayers filed separate tax returns, which seems surprisingly low.
It’s important to note that filing separate tax returns doesn’t result in allowing each person to fall into a lower tax brackets and thus pay less tax. It doesn’t work that way. The taxable income brackets for married filing separately are exactly half of brackets for married filing jointly. For example, the taxable income bracket where the 28 percent tax rate begins for marrieds filing jointly is $151,200 and for married filing separately is $75,600.
Still, sometimes filing separate tax returns can result in paying less overall taxes. Here are a couple of things to consider:
Unreimbursed medical expenses
Unreimbursed out-of-pocket medical expenses can be claimed as an itemized deduction for amounts that exceed 1o percent of the taxpayer’s adjusted gross income. But if a couple has AGI of $100,000, and one spouse has incurred $10,000 of out-of-pocket medical expenses, none of this would be eligible as an itemized deduction.
Miscellaneous deductions that can be claimed on Schedule A can also lower taxable income. But to do so, these deductions must first exceed 2 percent of AGI. So, if one spouse has paid a significant amount of costs for things like union dues, job search costs and unreimbursed business expenses, it may be worthwhile to file separately. You (or your tax pro) can prepare your tax returns under both filing statuses and compare the total liability under each option. Don’t forget to include the results for your state tax returns when you do this.
For the full article visit: http://www.cbsnews.com/news/when-its-better-for-couples-to-file-separate-tax-returns/