Featured News 2012 Joint Tax Returns: A Wise Idea?

Joint Tax Returns: A Wise Idea?

When you tie the knot, you are committing to a life of sharing with your spouse. One thing that you may wish to share is your tax return. A tax return by definition is a form where individuals or couples report all income, deductions, and credits. On the standard U.S. tax form, filers are required to declare their marital status. If you are single, then you can only report your personal income and deductions, which results in lower tax returns. On the other hand, spouses have two options. A married couple can file their taxes separately, or they may want to complete a joint tax return.

Joint tax returns are normally preferable because of the different tax liabilities. According to the IRS in "Marriage Filing Jointly" (publication 501,) "If you and your spouse decide to file a joint tax return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses." A married couple with joint income is able to benefit from a high standard of deduction on a joint tax return, and this means that the amount of taxable income drops. In a nutshell, normally a joint tax return merits lower taxes.

Filing together also cuts costs and time. Oftentimes a married person who files can contribute to an Individual Retirement Account (IRA) and will receive the largest standard deduction on taxes. This reduces the amount of earnings that are subject to tax. Another reason you may want to file for a joint tax return is the possibility of certain credits and adjustments. On a joint tax return, you may qualify for child and dependent care credit, educational loan interest, adoption expense credit, or Hope and Lifetime Learning credit, among others.

Joint tax returns sound wonderful because of all the benefits involved. However, there are some risks. Tax returns are legally binding, and both filers must be completely honest. Spouses are held mutually responsible if one cheats on the form. As well, if the tax return shows debt, both spouses can be held responsible for the dues regardless of whether or not they are both responsible. If the couple divorces before this debt is paid, it can create serious conflict, and may impose one person's debt on the other. The IRS can withhold refunds if you do not pay financial obligations that your spouse has acquired. These are usually neglected debts like a student loan default or unpaid child support.

If you do not trust your spouse, than do not co-sign a joint tax return with him or her. Questionable sources of income could become a legal concern, resulting in incrimination for fraudulent forms. If you have had an experience like this with a dishonest spouse, you will want to seek innocent spouse relief. This means pursuing acquittal from the court by proving that you were fully unaware of your spouse's dishonesty when you signed your joint tax return. Certain married couples may not benefit from a joint tax return for a variety of reasons. If one spouse is still the dependent of another tax payer, he or she will need to file separately to qualify for any tax return benefits. Also, if one spouse has significant debt, then joint filing could escalate the other spouses' financial risk. Many times the IRS will not deduct unreimbursed medical expenses and you will not be able to deduct various itemized deductions on a joint tax return.

In this case, you can file separate returns. As a married couple, both you and your spouse are required to use the same system for claiming deductions. What one spouse itemizes, the other must itemize as well. With separate tax returns, you won't face liability for taxes owed by your spouse, or suffer any of the consequences of his or her poor financial decisions. Unfortunately, you will pay the highest marginal tax rate and will have to give up tax breaks such as the child care tax credit and interest deductions on student loans. Also, it is more difficult to save for retirement when you file separately, because you won't be able to contribute to a deductible retirement account for a non-working spouse. In order to determine which filing method is best for you and your spouse, you should talk to an attorney. That way, you can carefully choose the best tax return method for you and your spouse, and rest assured that you are preparing for a beneficial financial future.

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