An individual's filing status can make a great deal of difference in how they make out during tax season. Married couples typically obtain larger deductions and credits than singles, so most partners choose the married filing jointly option when completing their tax forms. However, whether they benefit more from this filing status depends on a number of factors, and in some cases it can be more financially advantageous to file separately. For this reason, newlyweds should weigh the benefits and drawbacks before making a decision on their taxes.
For example, if one spouse had a significant number of medical issues and expenses in the past year, it may be in a couple's best interest to file separately. In order to claim medical expense deductions, the costs must exceed 7.5 percent of an individual's adjusted gross income. By filing separately, the taxpayer's income will be smaller and he or she may get to deduct more expenses, Bankrate.com explains.
Couples may also benefit from filing separately if one partner owes back taxes to the IRS or child support to a former spouse. The IRS can seize refunds to cover back taxes and unpaid child support, so if one spouse is expecting a large refund and files jointly with his or her partner, the refund they were anticipating is fair game for the government. It may also be better to file separate returns if a spouse is in the middle of an audit or has been audited frequently in the past.
Lastly, adults who are self-employed often claim deductions that may automatically catch the federal tax agency's eye. For example, home office deductions are often scrutinized more closely than other types of write offs, even though these tax breaks are legal and valid. If couples choose to file jointly and one is self-employed, it's important for the latter to make sure he or she has all the necessary documentation to claim these write-offs in case the IRS looks into it. This can not only help avoid an audit, but save time and energy for the other spouse as well.
Before choosing to file separately to get larger deductions, it's important to remember that this method may also cause couples to lose out on other deductions and credits. For this reason, it may be best to speak with a tax preparer and examine the pros and cons of each filing status option to choose the one that will provide the maximum return.
Liberty Tax Service provides computerized income tax preparation and electronic filing. Each tax office offers customers audit assistance, a money back guarantee, and free tax return checking.
About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.
Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.