Page 36

Alive_March2016

Filing Taxes Jointly or Separately for Married Couples Married couples have the option to file jointly or separately on their federal income tax returns but as with most things tax-related, choosing which category is best is a highly individual and complex decision. In the vast majority of cases, it’s more advantageous for married couples to file jointly; however, there may be some instances when it’s better for the couple to submit separate returns. Let’s examine the advantages and disadvantages of filing jointly or separately, and the circumstances in which it might be best to consider “married filing separately.” Advantages of filing jointly There are many advantages to filing a joint tax return with your spouse. The IRS gives joint filers one of the largest standard deductions each year, allowing them to deduct a significant amount of their income immediately. Couples who file jointly are eligible to deduct two exemption amounts from their income and they qualify for multiple tax credits such as the: • Earned Income Tax Credit • American Opportunity and Lifetime Learning Education Tax Credits • Qualified Adoption Expenses • Child and Dependent Care Tax Credit Joint filers also receive higher income thresholds for certain taxes and deductions—this means they can earn a larger amount of income and still qualify for certain tax breaks. (For further information about the above tax credits, please visit the IRS website). Consequences of filing tax returns separately On the other hand, couples who file separately receive few tax considerations. Separate tax returns may give you a higher tax with a higher tax rate. The standard deduction for separate filers is far lower than that offered to joint filers. • In 2015, married filing separately taxpayers only receive a standard deduction of $6,300 compared to the $12,600 offered to those who filed jointly. • If you file a separate return from your spouse, you are automatically disqualified from several of the tax deductions and credits mentioned earlier. • In addition, separate filers are limited to a smaller IRA contribution deduction. They also cannot take the deduction for student loan interest, or the tuition and fees deduction. • The capital loss deduction limit is $1,500 when filing separately, instead of $3,000 on a joint return. When to file separately In rare situations, filing separately may help you save on your tax return. For example, if you or your spouse has a large amount of out-of-pocket medical expenses to claim, filing separately may be advantageous. Since the IRS only allows you to deduct the amount of the expenses that exceeds 10% of your adjusted gross income (AGI), it can be difficult to claim most of your expenses if you and your spouse have a high AGI. Filing separate returns in such a situation may be beneficial if it allows you to claim more of your available medical deductions by applying the 10% threshold to only one of your incomes. In addition, there is a temporary A L I V 36 E E A S T B A Y m a r c h 2 0 1 6 PRESENTED BY KELLY TREVETHAN, CIMA, RFC exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse are 65 years or older or turned 65 during the tax year, you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016. How to decide which method to use The best way to find out if you should file jointly or separately with your spouse is to prepare the tax return both ways. Double check your calculations and then look at the net refund or balance due from each method. If you have any doubt about which method provides you with the greatest tax savings, please make sure to consult with a tax professional. Mr. Kelly Trevethan is a Certified Investment Management Analyst and Registered Financial Consultant. He is a Managing Director with United Capital Financial Advisers LLC, a national private wealth advisory firm with 79 offices across the nation. He can be reached at 415-418-2101. To obtain your free copy of the New York Times Bestselling book “The Money Code,” email him at Kelly.trevethan@unitedcp.com. Disclosures: All data herein are obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. United Capital does not provide tax advice. Investors should consult their tax professional with questions about their particular circumstances. © 2016 United Capital Financial Advisers, LLC. All Rights Reserved


Alive_March2016
To see the actual publication please follow the link above