4 Reasons Married Couples Should Consider Filing Taxes Separately

As a general rule, you shouldn’t wait until the last second to file your tax return. It helps to plan and make certain decisions ahead of time to speed up the process. For one, if you’re married, you’ll need to decide whether you will file a joint return or separate returns. Typically, a joint return is the smartest move, since you can cash in on some valuable tax breaks. But sometimes it makes more sense to file on your own.

A financial advisor can help you optimize a tax strategy for your financial goals, and determine whether filing taxes separately is a good idea.

1. There’s a Significant Income Gap

Spouses with vastly different incomes may find that filing separately prevents the higher-earning spouse’s income from pushing the lower-earning spouse’s into a higher tax bracket. In certain cases, keeping income separate results in overall tax savings, particularly when large deductions are in play.

Student loan debt in the U.S. has reached staggering proportions and approximately 70% of students leave school with loans. The average federal student loan debt in 2024 was $38,375, while those with private loan debt may owed as much as $41,520, according to the Education Data Initiative.

For grads who are struggling to find their way in the job market, paying down student loan debt can be a challenge. Opting for an income-dependent repayment plan can offer some short-term relief but qualifying can be a challenge if you’re married.

If you file your return jointly, an income-based repayment plan will consider both you and your spouse’s income. This happens even if only one of you carries the responsibility of paying the debt. When you file separately, only your income is taken into account to determine what kind of payments you qualify for. Again, you’re sacrificing certain other tax benefits. If you don’t have kids and normally take the standard deduction, you may not feel as much of a pinch.

3. You Have a Lot of Itemized Deductions

Deductions can be a major boon at tax time since they reduce your taxable income. However, the IRS limits how much you can write off based on what you make. If one or both of you have a substantial number of deductions to claim and there’s a pretty sizable gap in what you earn, filing separate returns can get you both the full amount of tax benefits.

For example, let’s say you experienced a serious illness or injury and you racked up some big out-of-pocket medical expenses. You can then deduct the amount that exceeds 7.5% of your adjusted gross income (AGI).

So, as an example, if your AGI is $45,000, you may be able to claim unreimbursed medical expenses over $3,375, which is 7.5% of your income. But, if your spouse earns $150,000, combining both incomes on your taxes is going to significantly reduce the tax benefit you’d get from the deduction if you were able to claim it all. In this case, going solo would probably yield the bigger advantage.

4. One of You Is Self-Employed

Whether you own a small business or work as a freelancer, your taxes will look very different from someone with a traditional 9-to-5 gig. First, you’re responsible for paying income tax on the money you earn. Then you also have to cover your Social Security and Medicare tax. For the 2024 tax year, the self-employment tax rate is 15.3%.

Since your taxes aren’t being taken out during the year, you’re generally expected to make estimated quarterly payments (every three months) to cover the amount of tax you owe. If you haven’t been doing that or you underestimated what to set aside, that can add to your joint tax liability or take a big bite out of your refund.

Splitting your taxes up may disqualify you from claiming certain credits or deductions. However, it can also minimize the amount of tax you’ll owe overall.

Is it Better to File Jointly or Separately?

Choosing between filing jointly or separately depends on multiple factors, including income level, deductions and tax liability concerns. While joint filing often provides more tax benefits, separate filing may be more advantageous in specific cases.

When It’s Better to File Separately

Here are some situations when it may be beneficial to file jointly:

• One spouse has significant medical expenses, student loan payments or other deductions that are based on AGI.
• A large income disparity between spouses could result in a lower overall tax burden when filing separately.
• One spouse prefers to keep finances separate for personal or financial planning reasons.

When It’s Better to File Jointly

Here are some situations when it may be beneficial to file jointly:

• The couple qualifies for valuable tax credits, such as the child tax credit or earned income tax credit.
• Both spouses have similar incomes, and filing jointly results in lower tax rates.
• The couple wishes to maximize deductions and benefits that are not available when filing separately.
• Filing jointly simplifies the tax preparation process and may lead to a lower tax preparation cost.

Bottom Line

These are just some of the most important things married couples should keep in mind when planning their tax strategy. If you’re getting divorced or you’re worried about being liable for your spouse’s tax debt, filing separately may be a no-brainer. When you’re trying to decide what the best choice is, running the numbers can give you an idea of how much you stand to gain or lose either way.

Tax Season Tips

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• SmartAsset’s free tax calculator will give you an idea of what you may owe this year.

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