Married filing Separately vs Married Filing Jointly for IDR

There is much concentration on whether to go with Married Filing Jointly or Married filing separately because of the difference it can make in the payment amount for an IDR (if MFJ you must include spouse income, if MFS you do not).  But its not that simple.  On top of it affecting your IDR, it also can affect other tax items.  We are using an article from taxipay.blogspot.com to discuss what can happen when you file MFS.

First off if you file married you can only file MFJ or MFS.  Also it is important to note that your spouse can never be listed as your dependant.

I am going to copy it straight from the taxipay.blogspot.com blog.  As I am going to someone more in the know if you have any questions please seek advice from a tax professional.  You can read the entire post here.

If you choose married filing separately as your filing status, the following special rules apply:

1. Your tax rate generally will be higher than it would be on a joint return.

2. You cannot take the earned income credit.

3. You cannot take the exclusion or credit for adoption expenses in most cases.

4. You cannot take the education credits (the Hope credit and the lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction.

5. Your exemption amount for figuring the alternative minimum tax will be half that allowed to a joint return filer.

6. You cannot take the credit for child and dependent care expenses in most cases, and the amount that you can exclude from income under an employer’s dependent care assistance program is limited to $2,500 (instead of $5,000 if you filed a joint return).

7. You cannot exclude any interest income from qualified U.S. savings bonds that you used for higher education expenses.

8. If you lived with your spouse at any time during the tax year then (a) you cannot claim the credit for the elderly or the disabled, (b) you will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received, and (c) you cannot roll over amounts from a traditional IRA into a Roth IRA.

9. The following deductions and credits are reduced at income levels that are half those for a joint return: (a) The child tax credit, (b) The retirement savings contributions credit, (c) itemized deductions, and (d) The deduction for personal exemptions.

10. Your capital loss deduction limit is $1,500 (instead of $3,000 if you filed a joint return).

11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

As we have posted to this reader’s question, what you do is talk to a tax professional to see if you will pay more in taxes than you save in IDR.  After you do this equation you can decide what the best choice is for you!