Status matters when filing

Once you’re married, you can no longer file as an individual or head of household. You’ll need to choose if you want to file as “married filing jointly,” where you file one combined tax return, or “married filing separately,” where you and your spouse each file a return.

It’s important to note that, regardless of filing status, couples must decide whether to claim the standard deduction or itemize their deduction in tandem. That is, one spouse can’t itemize deductions while the other takes the standard deduction.

Whether you take the standard deduction or itemize, completing one return is easier. The IRS encourages couples to file jointly by extending several tax breaks to those who file together. As a result, filing jointly generally results in a smaller tax bill compared with filing separate federal returns. However, there are a few instances when it’s better to submit separate returns.

So why file separately?

There can be advantages to filing separately. For example, you:

  • May qualify for higher deductions. Eligibility for certain itemized deductions (including, but not limited to, medical expenses, charitable contributions, and casualty losses) is determined by whether your expenses exceed a certain percentage of your adjusted gross income. Filing separately may improve your chance of meeting those income requirements.
    • For instance, the IRS allows you deduct the amount of medical expenses that exceed 10% of adjusted gross income (AGI). If you have a large amount of out-of-pocket medical expenses (for example, an amount that exceeds your individual AGI by at least 10%, but only amounts to 8% of your and your spouse’s combined AGI), filing separately may be beneficial because you could claim more of the available medical deduction by applying the 10% threshold to your income alone, rather than the combination of your and your spouse’s income.
  • Are only responsible for your own tax liabilities, not your spouse’s. Filing separately helps protect you against owing taxes, penalties, or interest for which your spouse is liable before or during your marriage. Please consult a qualified tax professional if this situation applies to you.
If you choose to file separately, please remember you and your spouse:

  1. Must itemize deductions or take the standard deduction in tandem.
  2. May be limited in, or even disqualified from, using certain tax breaks, including the earned income credit, the child and dependent care tax credit, the adoption credit, as well as deductions for college tuition expenses and student loan interest.

Effects on IRA contributions and conversions

If you and your spouse combined have a higher modified adjusted gross income (MAGI*), you might run into restrictions relating to your IRAs.

Traditional IRA contributions. Your eligibility to deduct a traditional IRA contribution is based on your federal MAGI, as well as whether you or your spouse participates in an employer-sponsored retirement plan. You may have lost your eligibility now that your and your spouse’s income are combined for tax purposes.

Roth IRA contributions. Your eligibility to contribute to a Roth IRA is based on the amount you earned for a given tax year as well as your MAGI. Your eligibility may have changed along with your marital status.

Roth conversions. If you converted any assets to a Roth IRA last calendar year, that money is taxable as ordinary income for that year. If you’re filing jointly for the first time, you could have higher tax obligations than you anticipated. If that’s the case, you might consider recharacterizing the assets back to a traditional IRA. You’ll have until the tax-filing deadline, including any extensions, to potentially recharacterize.

If your eligibility has changed, please consult a qualified tax professional to review your options regarding IRA contributions and recharacterizations.

Time to start filing

Your first joint tax return is the result of a happy change. Chances are, you’ve filed taxes before, so you’re ready to go. Gather the appropriate documents and get advice from a qualified tax professional if you need help determining which filing method best suits your needs.

*MAGI: An amount that is used for determining a taxpayer’s IRA eligibility; it is generally the taxpayer’s adjusted gross income (shown on IRS Form 1040 or 1040A) calculated without any IRA deduction, foreign earned income exclusion, foreign housing exclusion, student loan interest deduction, exclusion of qualified savings bond interest from Form 8815, exclusion of employer-paid adoption expenses from Form 8839, or deduction for qualified tuition and related expenses. Please note that MAGI for IRA conversion purposes will also exclude any current-year conversion amounts to determine eligibility. Use IRS Publication 590-A to assist with IRA calculations pertaining to various definitions of MAGI.

All investments are subject to risk, including the possible loss of the money you invest.

Consider consulting a tax advisor concerning your individual situation.

Consider the impact on your long-term investment strategy when making any transactions for tax purposes.