Married Filing Separately: How Can It Help You Save Money?
Author: Miod & Company
Date: May 19, 2022
Average Time Reading: 3 minutes
This article takes a look at who these situations affect and what you should know before deciding if the Married Filing Separately filing status is right for you.
Married Filing Separately
But that’s not the only reason why someone would want to file separately. Here are similar reasons, applying to either one or both spouses, where they would consider married filing separately:
- Having AGI-based deductions
- Having income-based student loans
- Living in a community property state
- Planning a divorce
- Having similar incomes
AGI, or Adjusted Gross Income, is used by the IRS to calculate the amount of income tax you owe. It also affects your tax deduction eligibility; the lower your AGI, the more you can claim.
One example of a deduction impacted by AGI is medical expenses: you can deduct those that exceed 10% of your AGI.
Student loans can follow you for years. If you’re still paying them during your marriage, you may want to think about filing separately. Why? Student loans are based on the individual spouse’s income, not both. Filing separately can reduce the number of your future payments.
A community property state is a U.S. state that requires the marital property to be equally distributed between spouses. If you or your spouse live in one of those nine states, it may affect how you both report your assets and income (and benefit from it).
Filing separately is also a great option for couples that are planning a divorce. This allows each partner to be in control of their own financial situation and taxes.
Also, when a couple breaks up, they can protect themselves from liability issues that could cause tax problems. Since both spouses must sign the joint tax return, it requires an agreement on both sides.
But if your spouse owes money, filing a joint return can reduce your refund.
If you or your spouse have any reason to suspect tax fraud or concealment of assets, they can refuse to sign and file separately.
Reporting income is an important step in every tax return. If you and your spouse are earning approximately the same amount of income, you may save some money by filing separately. For example, adding your income together could potentially place you in a higher tax bracket.
On the other hand, if you are earning a lot more or less than your partner, filing separately can benefit both of you. For instance, the lower-earning partner can enjoy a lower tax bracket and even receive some tax credits.
The Next Step After Knowing Married Filing Separately
While your tax liability will go down, you could end up paying slightly more and getting fewer tax breaks.
Making this decision on your own can be difficult, especially if you or your spouse are making a little more than the other.
To get rid of the stress when deciding your filing status, you can hire an expert willing to help you get on the right path. Taxes need a lot of attention—talking to an accountant or advisor is a great alternative to the guess-and-check method.
Here at Miod and Company, we want to help you make the most of a difficult situation. Contact us today!
Paul White joins Miod & Company
Author: Miod & CompanyDate: June 15, 2022Category: TaxAverage Time Reading: 4 minutesIt’s not a common occurrence for a business to bring on a member of a rival firm to its staff. It’s even less likely to bring on a founder of a rival firm. Paul White joining Miod...
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