Q: My wife and I were married last year, and we have a question about filing our income taxes. My mother has almost always given me good advice, and she is suggesting that we file married, filing separately instead of married, filing jointly for 2007. She says this will lower our tax bill for last year. Because we are now expecting, this will allow one of us to file as head of household for 2008, which would save even more on taxes.
I mentioned these ideas to my father-in-law, and after a few minutes of sitting there with a blank stare, he suggested that we go to a tax professional.
Our situation is pretty simple, and we’d like to prepare our own taxes, and of course, pay as little tax as possible. Is my mother’s advice sound or off the wall?
A: Congratulations on your marriage, pregnancy, having a mother who usually gives good advice and having a diplomatic father-in-law.
In some rare circumstances, electing the filing status of married, filing separately might result in a lower tax bill.
If one spouse has significantly higher income than the other, you will generally pay less tax if you elect to file your return as married, filing jointly.
If your incomes are about the same, you will generally pay the same amount of tax under either filing status.
If one of you had high medical expenses, casualty losses, employee business expenses or other miscellaneous expenses subject to a percentage limitation based on adjusted gross income, it might make sense to file as married, filing separately, because these expenses will be limited by the adjusted gross income of only one spouse.
Another good reason to file as married, filing separately is liability. Each spouse who signs a joint return is liable for the accuracy of the return and the payment of any tax or penalties owed. A spouse filing separately is not responsible for the other spouse’s tax return and any tax owed.
Some of the disadvantages of electing to file separately are:
* You cannot deduct student loan interest.
* Credits such as earned income credit, child care credit, adoption credit, Hope scholarships and lifetime learning credits are lost.
* Roth IRA conversions are not allowed.
* Unless spouses have lived apart for the entire year, contributions to a traditional or Roth IRA are not allowed if modified adjusted gross income is at least $10,000.
* Capital losses can’t be combined; each spouse is limited to a $1,500 loss deduction.
* The exemption for the alternative minimum tax is lower.
* If one spouse itemizes deductions, the other also must itemize; they cannot claim the standard deduction.
You might want to prepare your 2007 taxes using both the married, filing separately and married, filing jointly elections and see which provides you with the lower tax bill.
The head of household suggestion probably provoked the blank stare from your father-in-law.
If you are married, you must file either married, filing separately or married, filing jointly unless you are considered unmarried, and then you can file as head of household.
To be considered unmarried for tax filing purposes, you must meet several requirements. The unhealthiest one for a good marriage is that you cannot have lived together for the last six months of the tax year. In addition, both spouses would file separately, you would have had to pay more than half the cost of keeping up the home, and the home must have been the main home of your dependent child for more than half the year.