A lot of your tax decisions depend on your relationship status.
So if you just got married in 2011, mazel tov! Things are about to change for you—and one of those changes involves your taxes.
And even if you’ve done this whole couples tax thing before, it’s helpful to understand how being married affects your taxes.
Here’s what you need to know. Skim the headings to zoom in on the information that is relevant to your particular situation:
Take This Status
If you were married (and not legally separated) on December 31st, 2011, then you will file married either jointly or separately.
Married Filing Jointly
The typical choice for married couples, this should save you big in taxes. You are eligible for more deductions and credits, and it will simplify your tax filing significantly. Find out how combining your salaries will affect your taxes.
To learn more about filing status, use our flow chart to determine which is right for you.
Married Filing Separately
Married filing separately is just like it sounds: You have a spouse, but each of you will file a separate return, and keep your finances separate: separate incomes, separate expenses, everything.
If you got this as your filing status, you must have a really good reason. The IRS discourages couples from filing under this status by preventing couples filing separately from taking many deductions and credits available to married couples filing jointly. Plus, it’s twice the work for you and your spouse to file separately! However, there are some cases where it’s in your interest to file separately.
You or your partner has large deductible expenses: If you or your spouse has a large expense that might be deductible, it must be more than a certain percentage of your AGI (figure out your AGI) in order to qualify as deductible.
So let’s say you had a medical expense that cost you $5,000. If you file separately and your AGI is $50,000, the medical expense was 10% of your AGI and you can deduct a portion of it.
But if you file jointly with your spouse, who has an AGI of just $30,000, that means the medical expense was only 6.25% of your combined AGI, and you can no longer deduct it, which means you could be missing out on some tax savings. (Read our post on deductions to see which ones you might qualify for.)
But look at your entire financial picture to decide whether filing separately makes sense for you, because you may miss out on other deductions by doing so. We suggest getting an accountant, or working out the math for filing separately and jointly to see which nets you a lower tax bill.
Your spouse has a business: Instead of being a math equation, this decision is based on how comfortable you feel with combining your interests with your spouse’s.
If you file a joint return, you will be liable with your spouse for any audits, fines and interest on unpaid taxes, as this woman learned the hard way when she found out she owed $3 million to the IRS because she had no idea her late husband was cheating on his taxes.
Even well-meaning business owners can make mistakes. For example, this business owner made an honest mistake that resulted in fines. If you’ve ever heard the words, “I can’t figure out these freakin’ taxes,” or worse, “Taxes are stupid, and I don’t believe in paying them,” come out of your spouse’s mouth, file a separate return.
If, however, you are ever caught in situation like this, don’t panic; the IRS has two special publications just for you. The first is called Innocent Spouse Relief, and you can claim it when your spouse does something shady that you didn’t know about. The second is called Injured Spouse, and it can be claimed by you when your spouse owes child support or money to the IRS, and you want your fair share of the refund.
You suspect your spouse is not on the up-and-up with the IRS: While we hope this isn’t the case, we have to suggest you protect your own finances and file separately from him.
Use This Form
If you’re married and filing jointly, you might be able to use the simplest 1040 form, the 1040-EZ. If you are filing separately, however, you’ll have to use either the 1040A form or the regular 1040. Find out which form is right for you.
Take This Exemption
Exemptions work like deductions in that they reduce the amount of income you will be taxed on. For each exemption you take for 2011, you can deduct $3,700 from your taxable income. So if you fall in the 10% tax bracket, that translates to $370 less in taxes.
If you are filing a joint return, you can claim your spouse for an exemption. If you are filing separately, you can only claim an exemption for your spouse if:
- He/she had no gross income
- He/she is not filing a return
- No one else can claim him/her as a dependent
Take This Credit
If Your Spouse Is a Student or Taking Classes …
You could claim either the American Opportunity Credit or the Lifetime Learning Credit.
Education credits are claimed on the IRS form 8863. It’s important to note that you cannot claim the Lifetime Learning Credit and the American Opportunity Credit for the same student, even if he/she qualifies for both. We suggest taking the American Opportunity Credit if you are eligible for both. Learn more about education credits.
Should You Itemize?
When you are doing your taxes, you’ll have to decide whether you want to take the standard deduction or itemize your deductions. This decision has the potential to save you a lot of money on your taxes, so don’t take it lightly.
The Standard Deduction
The standard deduction is an amount of income that the government will not tax any taxpayer on.
Most people take the standard deduction on their returns, and opt out of the whole process of itemizing. It’s as simple as saying, “I’m married filing jointly (or married filing separately), and yes, I would like the standard deduction.”
For the 2011 tax year, if you’re married filing jointly, the deduction for both of you is $11,600. If you are married filing separately, the standard deduction is $5,950. For some people, this is just fine. But in some cases, itemizing will get you a larger overall deduction.
Itemizing your deductions means listing out each deduction you qualify for. People do this when the sum of all their deductions is greater than the standard amount.
If you are filing separately and your spouse itemizes, you will have to itemize as well. But if that isn’t the case, itemized deductions may be worth more than the standard deduction if you:
- Have large uninsured medical and dental expenses
- Pay interest or taxes on your home
- Have large unreimbursed employee business expenses
- Have large uninsured casualty or theft losses
- Make large charitable contributions