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Deciding To File Married Filing Separate

Couples or partners that are married can choose to use the married filing separate filing status. Using this filing status is selected because of unique circumstances between married taxpayers which include :

  • One spouse wants to file taxes, but the other doesn't.
  • One spouse is self-employed, and the other doesn't want to be responsible for the extra self-employment taxes.
  • One spouse owes taxes, and the other would get a refund.
  • They are separated but not yet divorced.

Married filing separate filing status has many of the normal filing requirements and benefits as married or single filers. You can allocate dependents between spouses, allocate income and deductions based on sources, ownership or material facts and obtain your portion of the refund or owe only your portion of taxes due. There can be financial benefits, such as when one spouse has low income and high deductions for medical, casualty or employee business expenses that could be limited by the higher joint adjusted gross Income. You are however restricted from separately choosing to itemize or take the standard deduction. If one spouse itemizes, both need to itemize even if the itemized deduction amount is less than the standard deduction.

Selecting the Married filing separate filing status rarely is a financial advantage on your US Federal tax return. If you must file Married filing separate, you need to know the restrictions and limitations on income, deductions and credits.

Income and Loss Limitations

There are certain income exclusions which cannot be taken with Married filing separate such as:

  • US Bond Interest - You cannot exclude interest income from qualifying savings bonds that you used for higher education expenses.
  • Rental Losses - If you have rental passive losses you are limited to only $12,500 if you never lived with your spouse during the year and you cannot take the loss in the current year at all if you lived with your spouse at any time during the year. You can carry forward the unrecognized loss until you qualify.
  • Capital Loss - Normally you can deduct up to $3,000 of capital losses each year. This is reduced to $1,500 for married filing separate.
  • Social Security Benefits If both spouses lived in the same household anytime during the year, the base amount is zero and 85% of their social security will be taxable. If they live apart all year the base and additional amounts are the same as single filers, which causes more social security benefits to be taxed.
  • Roth IRA contribution This is not an income limitation but, if you lived with your spouse any time during the year, your ability to contribution to a Roth IRA is limited and is zero if your AGI is over $10,000.
Adjustments and Deductions

You cannot take some adjustments such as the Student Loan Interest and Tuition & Fees Deductions. Certain adjustments will have a lower income phase-out ranges such as the IRA adjustment.

Credits and Payments

  • Credit for the Elderly and Disabled You do not qualify for this credit if you lived apart from your spouse. If you do qualify, your allowable credit is lower than all other filing statuses.
  • Child and Dependent Care Credit - Generally, married persons must file a joint return to claim the credit. If your filing status is married filing separately and certain conditions apply, you are considered unmarried for purposes of claiming the credit and may claim the credit.
  • Earned Income Tax Credit (EITC) Unless you can qualify to file as Head of Household (see below) you cannot claim this valuable refundable credit
  • American Opportunity and Lifetime Learning education credits You do not qualify for these credits if you file married filing separate.
  • Adoption credit - You cannot take the exclusion or credit for adoption expenses in most cases.
  • Reduced credits - The child tax credit and retirement savings contribution credit are reduced at income levels that are half those of joint returns.

Some taxpayers can eliminate the limitations discussed above. If certain conditions are met, you may be able to claim head of household which is more beneficial in most ways. You may be able to choose head of household filing status if you live apart from your spouse, meet certain tests, and are considered unmarried. This can apply to you even if you are not divorced or legally separated. If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions.

If you have already filed married filed separate you still have a chance to reduce your taxes. You can amend your returns and file jointly. Read again the limitations, discuss it with your spouse or partner and consider filing joint returns. If you have a choice and you are not filing married filing separate because it results in lower taxes, do everything possible to file your federal return married filing Joint or try to qualify for head of household.

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