What You Need to Know About Filing Taxes Jointly

As a married couple, you and your spouse have the option of filing taxes jointly or separately. The IRS does encourage you to file your income tax returns jointly by providing a host of resources and incentives to do so. There are a lot of advantages to filing taxes jointly. However, there are also some... Read More

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As a married couple, you and your spouse have the option of filing taxes jointly or separately. The IRS does encourage you to file your income tax returns jointly by providing a host of resources and incentives to do so. There are a lot of advantages to filing taxes jointly. However, there are also some instances where doing so might not be the best idea for your circumstances. Here are some things to know about filing taxes jointly and what it means for your finances.

What Does Filing Taxes Jointly Mean?

The IRS allows you to file taxes jointly as a married couple if you are married by the final day of the tax year-the 31st of December. Even if you are in the process of divorcing but haven’t finalized it by December 31st, you’re still considered married.

As a married couple filing under the “Married Filing Jointly” status, both of you can record:

  • Both your incomes
  • Each of your exemptions
  • Each of your deductions

Experts agree that filing your taxes jointly only works if one of you has a significantly higher income. However, if both of you work and have itemized deductions that are both large and unequal, then it may be a better idea to file separately.

However, the IRS considers you unmarried if the following conditions apply to your union:

  • You and your spouse lived apart from each other for at least the last six months of the year-business trips, military service, school and medical care are not taken into consideration.
  • You were the primary shelter provider for your dependents for at least the last six months of the year.
  • You paid over half the cost of upkeep for your home in the last six months of the year.

Whenever you choose to file your income taxes jointly, you need to realize that both of you are legally responsible for both the taxes and returns. If one of you understates the taxes due or tries to trick the system, then both of you are held liable for the penalties that are incurred. That is, unless one of you can prove that he/she wasn’t aware of what the husband/wife was doing and did not benefit in any way from the deceit. Proving this can be difficult because your finances are intertwined.

Tax law is tricky. If you and your spouse are having a difficult time determining your tax liability, it would be best to talk to an experienced tax preparer to ensure that you file your income tax return correctly. Whenever you file your taxes under married filing jointly, both of you will use the same tax return to report your income, credits, exemptions and tax deductions.

What Kind of Tax Credits Are Available for People Who File Jointly?

Several advantages come with filing taxes jointly. Primarily, these advantages come in the form of tax credits for couples who choose to file jointly. Some available tax credits include:

Earned Income Tax Credit

The Earned Income Tax Credit is one of the most substantial credits you can get from filing jointly. Generally speaking, this tax credit offsets some of your Social Security taxes. Your eligibility as well as the amount of credit is determined by your gross income, investment income and earned income. Here are some of the associated eligibility terms:

  • You have to be at least 25 years old but younger than 65 years.
  • Both of you must have valid Social Security numbers.
  • Both of you must have lived in the country for more than six months.

If you are married but decide to file separately, you don’t qualify for this credit.

American Opportunity Tax Credit

Formerly known as the Hope Credit, the American Opportunity Tax Credit helps families pay for four years of post-high school education. As a married couple filing jointly, the full American Opportunity Tax Credit is available if your adjusted gross income is $160,000 or less. The students in question must be enrolled for at least half-time and be in the school for at least one academic year. The best part is that this credit is offered on a per-student basis.

Lifetime Learning Credit

Similar to the American Opportunity Tax Credit, the Lifetime Learning Credit was also set up to help pay for post-secondary education. The main difference is that the LLC is available for many years of post-secondary education as opposed to just the first four as is the case with the American Opportunity Tax Credit. As a married couple filing jointly, you could get up to $2,000 per-student if you make less than $114,000 jointly.

Child and Dependent Care Credit

If you have to pay for childcare for kids under 13 years of age, then the Child and Dependent Care Credit is there for you. The credit is also available if you’re caring for a spouse or a dependent who is either physically or mentally incapable of taking care of themselves. The credit gives you up to 35% of qualifying expenses.

Savers Tax Credit

Formerly known as the Retirements Savings Contribution, the Savers Tax Credit is available to you if you have a qualified investment retirement account such as a 401(k) and other specific retirement plans. When filing jointly, you can get up to $2,000 in credit.

The Pros and Cons of Filing Taxes Jointly

Typically, the benefits of filing jointly tend to outweigh the cons. Here are some advantages of filing taxes jointly:

  • You can use your spouse as a tax shelter and save money.
  • Your jobless spouse can have an IRA.
  • You can greatly benefit from the tax credits that come with filing jointly.
  • Filing together can take less time and cost you less.

As is the case with everything that has a positive side, filing jointly also has its negative side:

  • Both spouses are responsible for the returns.
  • Your refunds can be blocked if one of you has a garnishment for unpaid child support or loan.

How Filing Taxes Jointly Works for Same-Sex Marriage

The Treasury and the IRS announced that all legally married same-sex couples must adhere to the same rules and laws as married heterosexual couples. That means that you can either file taxes jointly or separately.

When it comes to income and gift and estate taxes, they’re be treated the same as any other couple filing a joint tax return. It also applies to their filing status, their exemptions, standard deduction, employee benefits, IRA contributions, and the earned income and child tax credits.

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Source: credit.com