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Married couples have the option of filing jointly or separately on their income tax returns. Your filing status determines how much your standard deduction will be, what your tax rate will be, and if you are eligible for certain tax credits and deductions. Most of the time it is better for married couples to file jointly, but there are a few factors to consider when making this decision.

Advantages of Filing Jointly

There are many advantages to filing a joint tax return with your spouse. Couples who file together can more easily qualify for many tax deductions and credits that are not available to couples who file separate tax returns. Married filing separately (MFS) can disqualify or limit your use of the following tax breaks:

  • Child and Dependent Care Credit
  • Earned Income Credit
  • Adoption Credit
  • Education Tax Credits
  • Student Loan Interest Deduction
  • Tax-Free Exclusion of Social Security Benefits
  • IRA Deductions
  • Capital Loss Deduction

Advantages of Filing Separately

One clear benefit of filing separately is that you are solely responsible for the accuracy and payment of tax related to your separate tax return. Signing a joint tax return makes you both responsible for accuracy, completeness, and tax liability on the joint return. Therefore, if you suspect that your spouse is omitting income or overstating deductions, you may want to file a separate return.

Additionally, you and your spouse may end up with a lower tax bill if one of you has a significant itemized deduction. If you and your spouse both have taxable income and at least one of you has significant itemized deductions that are limited by your adjusted gross income (AGI), you should calculate your tax liability for both filing separately and filing jointly to determine if file separately would be more beneficial.

For example, let’s look at a taxpayer and spouse that have salaries of $80,000 and $75,000. Their deductions consist of the following:

  • mortgage interest of $15,000;
  • real estate taxes of $7,000;
  • charitable contributions of $1,000; and
  • the spouse has a $20,000 hospital bill.

This couple would save around $1,200 by fling separate tax returns because the spouse is able to deduct more of the hospital bill on her own tax return since medical expenses are only deductible to the extent that they exceed 10% of your AGI. Other common itemized deductions limited by AGI include charitable contributions, attorney fees, investment expenses, and unreimbursed employee business expenses.

Other reasons to think about filing separately include the following:

  • Spouses live apart or are separated and they want to keep their finances as separate as possible
  • One spouse’s tax refund is subject to seizure for unpaid tax debts
  • You have a lot of unearned income, including capital gains and dividends
  • Spouse has defaulted on student loans or has not paid child support

When filing separate tax returns, it is important to note that both taxpayers must claim the standard deduction or both must itemize their deductions. This prevents one taxpayer from loading up on all of the itemized deductions while the other taxpayer takes the standard deduction.

It is also essential to note that if married individuals file a joint return, they may not later amend to file MFS for that year. On the contrary, if taxpayers file separate returns, they may later amend their return to file a joint return.

As with most tax related questions, the answer on which way to file depends on your personal situation. It is important to consider the financial and non-financial reasons when filing your tax return. Selden Fox will take into account your personal concerns while helping you decide which filing status will minimize your tax liability.

John Wojcik

John Wojcik is a Tax Manager and works with a variety of firm clients, including individuals, family businesses, business owners, and various corporations. John earned his bachelor's degree in accounting from Illinois State University and his MST in taxation from Northern Illinois University - College of Business.