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Are you wondering if filing separately might be the right choice for your tax situation?
In this episode, Mike Jesowshek discusses various aspects of 'married filing separately' tax status, explaining when this filing status could be advantageous. He primarily mentions scenarios such as a high medical expense situation for one spouse, significant student loan debt based on income for one spouse, or a tax lien on one spouse. Though in general, he believes 'married filing jointly' often provides better tax benefits. Mike also highlights the potential downsides to filing separately, such as higher tax rates and the loss of certain tax benefits.
[00:00 - 04:13] Married Filing Separately: When does it make sense?
- Mike emphasizes that advising clients to file separately is rare, but they want to educate on when it does make sense.
- Key reasons for choosing to file separately:
- A complete separation of tax liability
- High medical expenses
- Income-based student loan payments
[04:13 - 06:29] The Downsides of Married Filing Separately
- A key downside highlighted is higher tax rates for those who file separately, potentially leading to a higher overall tax liability.
- The loss of several tax benefits when filing separately is also possible, including education tax credits, child independent care tax credits, earned income tax credits, and deductions for student loan interest and certain retirement savings contributions.
- Mike also touches on the potential for double taxation in community property states when filing separately, adding complexity and possibly higher tax preparation fees.
[06:29 - 09:10] The Process of Filing Separately
- Each spouse must complete their own tax returns, including their individual income, deductions, and tax bills.
- When filing separately, couples must decide who will claim any dependents.
- If one spouse opts for itemized deductions, the other must also do the same, which can be a disadvantage.
- Mike shares some example situations where filing separately makes more sense.
[09:10 - 15:23] Recap and Final Thoughts
Quotes:
"When you file separately, you're separating yourself from that spouse. So the spouse that doesn't have the tax debt doesn't get their refund necessarily taken away." - Mike Jesowshek, CPA
"Most taxpayers we talk to are far better off filing jointly instead of separately. But there are some specific cases where separately makes more sense." - Mike Jesowshek, CPA
"When you file separately, it doesn't mean that you're having marital issues... We just want to look at what the tax benefit is." - Mike Jesowshek, CPA
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Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast
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