When Married Filing Separately Will Save You Taxes – Presented by TheStreet + TurboTax

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~~~Video Transcript
Title: When Married Filing Separately Will Save You Taxes – Presented by TheStreet + TurboTax
– [Announcer] TurboTax helps you navigate the 2020 tax season.

– Sometimes filing separately will save a married couple on their taxes. Here to explain is Lisa Greene-Lewis, CPA and tax expert at TurboTax. Tell me, Lisa, I thought that married couples should file jointly, but maybe that’s not always the case.

– Generally, you should file jointly, ’cause you may see a lower tax rate and some bigger benefits like a bigger standard deduction, which if you’re married filing jointly is $24,400, but there are some reasons that someone may wanna file separately.

– What are some of the reasons that a married couple may file their taxes separately?

– One of the reasons is if you find that each of you has six-figure income and both of you generally make the same amount, it may be more beneficial for you to file separately tax-wise. And then a second reason, if you’re newly married and maybe you’ve found out that the person you married has some type of debt, you may wanna file separately, or if they have a self-employed business and you don’t wanna have that tax debt for the self-employed business, you may wanna file separately.

– And what does that mean for deductions?

– So when you file separately, there are some deductions that you may not be able to get even though you’re married. So when you file separately, like say, you or your spouse are going to college or taking one class, you can’t get the credit for education expenses because you have to be filing jointly in order to get that.

– And medical expenses matter too, right?

– Yeah, well, if you itemize, so if you’re filing separately and one spouse itemizes their deduction, the other spouse has to itemize as well. So you would split those expenses. Another reason for filing separately is if you’re going through divorce, it may be beneficial if the communication isn’t the best, because each person has to sign a tax return. So if you’re filing separately, you will be able to sign your own tax return and be responsible for what’s on that return.

– It’s a tense time for people divorcing already, and it’s also a tense time in terms of tax season, no reason to make it tenser, right?

– Right.

– And does TurboTax help a married couple come to an agreement how best to file?

– TurboTax will walk you through, it asks questions about you and your spouse, so it will help walk you through. And you can also use, we have TurboTax TaxCaster, where you can walk through the scenarios and put your information in as a married filing jointly couple or married filing separately.

– All right, well, thanks Lisa, and thank you for watching “The Street”….(read more)

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When it comes to preparing and filing your taxes, one important decision to make is how you and your spouse will file your tax returns. While most couples opt to file jointly, there are certain situations where filing separately can actually save you money. Let’s uncover when married filing separately will save you taxes.

One key factor to consider is whether you and your spouse have similar income levels. If both of you earn roughly the same amount, filing jointly may not provide any tax benefits. However, if there is a significant income disparity between you and your spouse, filing separately could be advantageous.

By filing separately, you can potentially reduce your tax liability if one spouse has high medical expenses, miscellaneous deductions, or casualty losses. To claim these deductions, your expenses must exceed a certain percentage of your adjusted gross income (AGI). Filing separately allows the spouse with lower income to reach that threshold more easily, resulting in more significant tax savings.

If one spouse has significant student loan debt, filing separately could also be beneficial. When filing separately, the income-driven repayment plans and student loan forgiveness benefits won’t be affected by the higher-income spouse’s earnings. This can result in lower monthly loan payments and potentially more savings over time.

Another benefit of filing separately is protection from potential tax liability. When you file jointly, you and your spouse become jointly liable for any tax debt or audit findings. If one spouse has concerns about the other’s tax reporting or expects possible legal issues, filing separately can offer some relief from this shared responsibility.

It’s worth noting that filing separately may limit your eligibility for certain tax credits and deductions. For example, the Earned Income Tax Credit (EITC) and the Child and Dependent Care Tax Credit are only available for couples filing jointly. Additionally, if you choose to itemize your deductions, both spouses must make the same choice. If one spouse itemizes, the other must also itemize, even if it means losing the benefits of the standard deduction.

To determine whether filing jointly or separately is more advantageous, it is essential to compare both scenarios side by side. Tax preparation software, like TurboTax, can help streamline this process and provide accurate calculations for both filing options. TurboTax, in collaboration with TheStreet, offers expert guidance and assistance in making the right tax filing decision for your specific circumstances.

In conclusion, while filing jointly is the preferred option for most couples, married filing separately can result in tax savings in certain situations. If there is a significant income disparity, high medical or student loan expenses, or concerns about potential tax liability, it is important to evaluate the benefits of filing separately. Consulting tax professionals or utilizing reliable tax software like TurboTax can assist in making an informed decision and ultimately reducing your tax burden.