Along with its many joys, marriage comes with many new challenges. ‘I do’ means committing to making lifelong joint decisions. These decisions include choices regarding tax time.
More specifically, deciding whether to file tax returns separately or jointly. Many people automatically file joint returns. However, there are certain situations where filing solo offers more benefits. Keep reading to learn everything you need to know about the ‘married filing separately’ status.
How Does Married Filing Separately Work?
As one of the many different tax-filing statuses you can choose, married filing separately means your spouse and you will each report deductions, income, exemptions, and credits on separate tax returns instead of a single joint return.
Each person will be responsible for their tax liability. This means one will not be liable for any penalties, interest, or tax that results from the other’s return.
Keep in mind that married filing separately significantly differs from filing as a single unmarried person. The tax brackets are different for both, and certain rules must be followed when filing solo as a married person.
For instance, you’ll need to figure out which partner gets which deductions, which can sometimes get complicated, especially if you’d like to deduct your mortgage interest.
Scenarios When Filing Tax Returns With A Single Status Might be Better
#1- When You Both Earn a Similar Income level
The way tax brackets are calculated, many high-income couples might end up with lower tax rates than if they choose to file separately. Therefore, if both spouses are high-income earners, tax specialists may recommend filing separately.
However, in some situations, couples with low incomes might have to pay more tax when they file separately than what they would’ve when filing joint returns in lower tax brackets. Tax advisors at IBISS & CO. can help you determine the best route so that you can understand how much you’ll need to pay if you file jointly versus solo.
#2- When You Pay Hefty Medical Bills
Filing separately helps some people qualify for decent tax breaks. For instance, when someone itemises, they can deduct the un-reimbursed medical expenses and exceed a certain percentage of the adjusted gross income.
When one spouse has a lower income and various medical expenses, filing separately can make it easier to cross the adjusted gross income threshold percentage to deduct the medical expenses. In order to benefit, the medical expenses must be higher than the standard deduction.
#3- When Your Income Determines the Student Loan Payments
Filing separately might also help reduce the income used to determine your student loan payments. Some taxpayers often make these payments based on their income tax returns. Therefore, it could be beneficial to file as a solo to benefit from lower student loan payment plans.
#4- Neither of You Wants to Take Responsibility for Each Other’s Tax Liabilities
Many file solo to limit their liability for the other spouse’s tax liabilities and errors. Married filing jointly would mean each spouse will be equally responsible for the tax return’s accuracy while ensuring the right amount of tax is assessed and paid in the future on time.
Whether it’s because of a lack of trust between spouses due to business activities or tax positions being undertaken on returns, filing solo can help protect the innocent spouse from potential tax liabilities or legal implications.
Moreover, if there’s a due balance history, or one spouse is filing several years’ returns at once to meet compliance laws, filing jointly as married puts all assets on the table. If one has back taxes, the other spouse’s assets can be seized to satisfy the HMRC, even if the other spouse caused the tax errors or bulk of income.
Which Filing Status to Choose?
Before you take a step ahead, it’s important to understand the general rules and guidelines for married filing solo and married filing jointly.
One of the best ways to figure out what would be best for you is to schedule a consultation with professional chartered tax accountants at IBISS & CO. to discuss your specific circumstances.
Feel free to connect with our tax advisors for even some of the most complicated accounting and taxation issues. Our team of professional tax accountants in the UK has extensive experience in dealing with clients in diverse situations and industries.
Our tax specialists can help you with various accounting and tax-related concerns, including inheritance tax planning, corporation tax, landlord self-assessment tax return, personal tax, non-resident landlord self-assessment capital gains tax, property taxes, and more.
Find more detailed information on tax-saving strategies here, or give us a call to get started.