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Splitting the tax bill is also associated with tax liability between spouses. This is the most common reason why married couples prefer filing taxes separately.
The Myth
You save money on taxes if you file separately from your spouse.
Background Information
In practice, particular scenarios exist where one can save money on income taxes. An example of this is marriage.
For a couple to be classified as being married by the IRS, the following conditions must be met:
- Couples must be lawfully married.
- The couple must live together within the state.
- They have yet to be officially registered as divorced due to a lack of maintenance forms or a final verdict.
The Truth
The origin of this myth can’t be pinpointed, but many believe it has probably gained prominence from a couple who were successful in reducing their tax costs through these means.
All married couples usually have the option of choosing a method for filing their tax returns—jointly or separately. The myth is that separating your tax filing returns will save you a lot, but this is not always the case. By filing separately as a married couple, you cut the deductions for IRA contributions while eliminating possible reductions, such as child tax credits and other tax breaks.
A partner may pay less to the IRS by filing individually when both spouses work and earn the same amount of money.If having compared the tax to be paid under separate and joint filing statuses, couples may discover that by combining their earnings, then they may fall in a higher tax bracket.
There are situations where the exception may be valid. One fact that remains is you will pay less in taxes filed jointly as a couple. In doing so, you lose certain credits and gain deductions, such as the child tax credit (CTC), adoption tax credit, earned income credit, student college tuition credits, or loan interest deduction.
Why couples prefer filing separately
Splitting the tax bill is also associated with tax liability between spouses. This is the most common reason why married couples prefer filing taxes individually. There are multiple valid, legal reasons why couples would want to split tax liabilities, especially when one or both spouses own businesses. There are also times when a spouse may be uncomfortable with the other’s tax principles and would prefer to safeguard themselves from potential tax complications; thus, filing separately can become an option.
If a divorce is being considered or pursued, however, filing separately will possibly minimize any complications with the IRS after the divorce has been passed.
Need for caution
While you look for strategies to reduce your income taxes, it is essential to be careful while taking tax advice from friends and family who are incompetent to do so. Even though the intentions are often good in most cases, one can still be misguided. They can cause you a lot of grief in the form of lost time, energy, and money.
Relying on advice from a cousin, for example, won’t get someone out of penalties from the IRS, since his or her advice may turn out to be inaccurate.
