The Pros And Cons To Filing Taxes Jointly In California
For married couples, tax season brings about an important family decision to make: filing taxes jointly vs. separately. While filing taxes jointly in California can often help couples simplify their tax preparation and potentially save money, its not always a clear-cut decision.
Filing taxes jointly vs. separately can depend on a number of factors, such as the income of each spouse and how that income affects the tax brackets they fall into. Choosing your filing status can also include considerations such as tax deductions, for which sometimes there are advantages to filing jointly and sometimes there are advantages to filing separately.
Keep in mind that although the decision to file separately may seem counterintuitive for those who intend to stay married and for those who share finances, there can be situations where the couple saves money by filing separately. To decide which filing status works best for your family, consider factors such as the following:
What Are The Advantages Of Married Filing Jointly
More likely than not, youre better off filing jointly. Here are a few reasons why:
1. You have a higher standard deduction.
If you file separately, you only get a $12,000 standard deduction. Filing jointly doubles that amount to $24,000. Yeah, thats right. We said $24,000! Most tax filers can substantially lower their taxable income with that.
2. You get more tax credits.
Tax credits are like gift cards from the IRSthey apply to your final tax bill and reduce it dollar-per-dollar. Call it a late wedding present , but the IRS gives more tax credits to married couples filing jointly than to couples filing separately.
If youre married filing jointly, then you may qualify for some of these tax credits:
- Earned Income Tax Credit
- Child and Dependent Care Tax Credit
- Adoption Credit
- American Opportunity Credit
- Lifetime Opportunity Credit for Higher Education Expenses
Now, just to be clear: You can get these credits if your filing status is married filing jointly, single or head of household. But if youre married filing separately, you wont be eligible.
3. You can save time.
We cant overstate this. When you file jointly, you only have to fill out one tax returnnot two. So youre saving time. And if youre using a tax pro, filing separately could cost you more money.
4. Filing jointly is less complicated.
Who Cant Use The Married Filing Jointly Status
Not every married couple will be able to use the married filing jointly status. Here are some situations where you and your spouse may not be eligible for the status.
- You were married for part of a tax year but officially divorced before the last day of the tax year. In that situation, the IRS considers you unmarried for the entire year for tax purposes, and you cant use the married filing jointly status.
- You or your spouse is a nonresident alien at any time during the year. But if one spouse is a nonresident or dual-status alien and the other is a U.S. citizen or resident alien at the end of the tax year, the nonresident/dual-status spouse can choose to be treated as a resident alien for tax purposes, which would allow them to file a joint return. Learn about determining alien tax status.
If your spouse died during one of the previous two years, you havent remarried, have a qualifying child and meet other requirements, youd have to use the qualifying widow status. While its not exactly the same as married filing jointly, this status for surviving spouses provides some tax benefits similar to the filing jointly status.
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
For Advanced Moves See A Pro
Listen, this is all just Filing Jointly 101or like, possibly the high school class you take before you even get to 101. If you and your main squeeze have simple tax situations, and youre filing jointly for the first time, you probably wont go too far wrong with some diligent research and solid tax software. But there is literally a whole industry and field of study dedicated to understanding the tax code, and figuring out how to best optimize your situation to pay as little tax as possible over your lifetime.
Theres plenty you can do after you get the basics handled to optimize your taxes as a family, from spousal RRSPs to other advanced moves. Im not the person to ask about those, but a CPA, CFP, or financial professional can help you plan your overall financial situation, and take taxes into account for you at the same time. If you have questions you arent confident answering yourself, you should work with one!
For Most Couples Its Best To File Taxes Jointly By Doing So There Are Advantages Including Tax Breaks
Are you wondering if you should file your taxes jointly or separately? For couples that have recently tied the knot and even for those who have been married for years, this is a very common question. For most couples, its best to file taxes jointly. By doing so, there are advantages including the IRS extending tax breaks.
For the majority of couples, the benefits of filing taxes jointly outweigh filing taxes separately. However, there are certain situations when its best to file separate returns. For example, couples with one spouse having a large total of medical expenses, filing separately may pay off.
The Need-to-know Facts
- You may file jointly if you are legally married .
- Upon deciding to file taxes jointly, both spouses must agree to file a joint tax return and both must sign the return.
- In the case that during the tax year your spouse has died, you still have the option to file jointly or separately.
- You are responsible for your spouse. According to the IRS from Publication 501 :
Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint returnOne spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.
Advantages of Filing Jointly
The IRS strongly encourages couples to file taxes jointly. The following are advantages of doing so
Who Should File Separately?
What Are The Tax Rates And Standard Deduction For Married Filing Jointly In 2020
For the 2020 tax year, the standard deduction is $24,800 for joint filers. And it could be higher if youre 65 or older or are blind. By comparison, single filers get a standard deduction of $12,400 for 2020.
The U.S. tax code is progressive, which means your income could fall into multiple tax brackets. In that case, youll pay the rate for each bracket only on the portion of your income that falls within the thresholds of that bracket. And youll pay a flat amount of tax in addition to the percentage of income for most brackets.
For example, a married couple filing a joint return for 2020 who has taxable income of $70,000 would pay 10% on the first $19,750 of taxable income and 12% on the remaining $50,250 .
Their tax calculation would look like this.
First tax rate that applies to their income: $19,750 x .10 = $1,975
Second tax rate that applies to their income: $50,250 x .12 = $6,030
$1,975 + $6,030 = $8,005
Plus, they would also pay an additional flat amount of tax from their first tax bracket to determine their total tax.
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How Do You File Jointly
Filing your taxes jointly isnt that different from filing as single or head of household. You and your spouse still have to report your income and list deductions and credits. The biggest difference is that youll choose married filing jointly as your filing status instead of the others.
But if this is your first tax season as husband and wife, youll need to take care of a couple of things first:
If this is your first tax season as husband and wife, youll need to take care of a couple of things first.
Tips For Filing Taxes As A Couple
When youre filing for the first time as a married person, there are a few things to keep in mind beyond choosing to file jointly or separately. Here are three steps the IRS encourages:
Update your name if necessary. If you changed your name, youll need to update your Social Security card in order to claim any personal exemptions or the Earned Income Tax Credit. Reach out to the Social Security Administration and get that taken care of before you file.
Change your address if necessary. If you moved, make sure you get your refund check and any important communications by updating your address with the U.S. Postal Service and the IRS.
Tip: Update your address with the IRS by calling them, sending a written signed statement or using Form 8822.
Choose the right form. If you have enough deductions to itemize them rather than claiming the standard deduction, you can save money by selecting the right tax form. You can claim itemized deductions on Form 1040but not Form 1040-A or Form 1040-EZ.
Taxes are never a simple topic. If you feel youre beyond your depth, reach out to a Certified Public Accountant or Certified Financial Advisor for help making the best decision for you and your partner. They can help ensure you dont leave money on the table.
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When Can Married Couples File Separately
In certain situations, married couples may choose to file their taxes separately. They are not obligated to file together. The following are some scenarios when married couples should file separately.
1. One partner has substantial tax responsibilities or risks.
Many couples find it difficult to talk about this, but it’s crucial to remember that if one spouse has unpaid taxes when they first get married, both partners are responsible after they file a joint return.
Couples who are principals in a firm with significant tax risks, such as those in which one or both partners are partners, may also want to file separately because, in the case of a joint return, both spouses are responsible for the tax obligations of the other.
Although “innocent spouse relief” laws are in place, the IRS is quite stringent about when they can be used. Simply claiming that “he or she never told me about it” will not absolve you of your obligation.
Even if they reside in a jurisdiction where community property is allowed, married couples may file as married filing separately if it is more advantageous for their circumstances.
If you have to file separate returns because you owe capital gains on a jointly held investment, for example, state law will dictate how income and deductions are distributed.
2. Divorce or separation
3. Liability Issues
4. Different Pay Grades or Deduction Amounts
5. If filing separately would result in greater tax savings for you
When And Why To File Jointly
Though there are reasons to file separately, which we explore below, filing jointly is often the best course for married couples.
There are penalties associated with filing separate in the way various phaseouts and limitations are applied, says , CPA/PFS, CFP, co-owner of Tobias Financial Advisors in Florida.
To be clear, youre not directly penalized for filing separately, but you are forbidden from taking tax breaks that would otherwise be available to you. Here are some good reasons to file jointly.
You want to qualify for more tax deductions and credits
In most cases, it is more advantageous to file jointly because doing so gives you access to more tax deductions and credits than you would filing separately, says Riley Adams, a licensed CPA in Louisiana, and author of the personal finance blog, Young and the Invested.
Most benefits tied to education expenses are granted to couples only when they file jointly, such as the American Opportunity Tax Credit , Lifetime Learning Credit and the student loan interest tax deduction . Filing separately means you can’t claim these items on your return.
Adams notes that filing jointly has the potential to change your discretionary income used for calculating your minimum monthly student loan payments meaning the minimum could go up however, you also have access to the additional tax credits and tax deductions mentioned.
You dont want to be taxed on all social security income
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Is It Ever Better To File Separately
In rare situations, filing separately may help you save on your tax return, Rahill notes. For example, if you or your spouse has a large out-of-pocket medical expense to claim and the IRS only allows you to deduct that amount if the costs exceed 7.5% of your adjusted gross income as they did in 2021, it might be difficult to claim those expenses if you and your spouse have a combined high income.
Tip: You can decide whether or not to file jointly or separately on a year-by-year basis. If youre married, the IRS suggests you do your taxes both jointly and separately each year, determine which gives you the lowest combined tax rate then file with that option.
For example, if you have $10,000 in medical expenses and make $50,000, you would meet that threshold and be able to deduct the amount from your taxes. However, if your partner makes $85,000 and you file jointly, your shared income would be $135,000, disqualifying you from claiming these medical expenses.
Filing separate returns in such a situation can be beneficial if it allows you to claim more of your available deductions by applying the threshold to only one of your incomes, Rahill explains.
A Spouse Is On An Income
Another reason to consider filing separately is if one spouse uses an income-driven repayment plan for federal student loans. When you file jointly, your combined income is recognized as the borrower’s income, since the AGI listed on your annual tax return is the figure used to represent income. A higher combined AGI could significantly drive up monthly payments for the individual borrower.
Filing Your Taxes Together May Not Be The Glue That Will Ensure You Stay Married Forever But It Could Save You Money And Help You Cash In On Some Lucrative Tax Credits
It would certainly be nice to think that couples who file their taxes together are more likely to stay together.
But at the very least, filing jointly can save you money. And given that financial issues are a classic flashpoint for couples, that cant be a bad thing.
Sure, there is no one-size-fits-all approach when it comes to doing your taxes. In some cases, you may be better off filing separately, especially if you suspect your partner isnt telling you the whole truth about their financial past, financial planners say.
However, couples who file together enjoy a number of advantages, from generally lower tax brackets to more generous tax credits. And those advantages wont disappear with the new tax law just passed by Congress.
If you file married filing separately, the income limits are really low for the various tax brackets, notes Edward Vargo, a certified financial planner whose Burning River Advisory Group is based in Westlake, Ohio. You get hammered pretty quickly.
To capture the lowest rates, filing jointly works best when one spouse is making significantly more than the other.
For example, take a teacher making $50,000 and a spouse earning $15,000 working part-time. In a straightforward tax calculation, each would pay higher rates on their incomes if they filed separately.
Of that $2,000, up to $1,400 is refundable if you dont owe any back taxes, with a $500 credit for other dependents, according to the provisions of new tax law.
What Is Married Filing Jointly
Married filing jointly is a filing status for married couples, allowing them to file joint tax returns. When filing taxes under married filing jointly status, a married couple can record their respective incomes, deductions, credits, and exemptions on the same tax return.
Married filing jointly is often the best choice when only one spouse has an income or the most significant income however, if both spouses work and the income and itemized deductions are large and very unequal, it may be more advantageous to file separately.
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What Happens When You File Jointly
The biggest change, tax-wise, that you might notice is that credits you qualify for as an individual might no longer be applicable for your joint familys income. As an example, if you currently qualify for the GST/HST credit, but your partners income is much higher than yours, you might not qualify for it once youre filing together.
But heres what doesnt happen: You dont get taxed on your income as a couple. If you earn $40,000, youll still only owe the tax you already owed on that $40,000, even if your partner earns $200,000. In some places, your family income is taxed all together, but in Canada your personal earned income is still subject to the same rates as it was before.