So, naturally, the question often arises as to which filing status is better? One reader emailed me to ask,
"Ok, now for my situation: I want to understand the differences between filing Married vs. filing Married Separately. Prior to this year my status was always filing Single. Got married this past year and need to understand the larger implications. We have 2 houses we need to claim and I am a current MBA student and will need to file deductions for tuition paid out of pocket."In this situation, filing a joint return will produce the least amount of federal tax liability. That's because there's a long list of deductions that are denied under the married filing separate status. Most important, separate filers are not eligible for any of the education tax breaks, such as the tuition and fees deduction, and the Hope or Lifetime Learning tax credits. And since this reader is an MBA student, the couple will likely be able to take advantage of these tax breaks on their jointly filed return.
But there's another aspect that should be kept in mind. By filing jointly, you accept joint and several liability for the taxes. So that means if you file a return with a balance due, both spouses be held responsible for paying it, even if the balance is the result of only one person's actions. They will also both be responsible if there's an audit down the road. With that in mind, I recommend filing separately when one spouse owes but the other would get a refund, or where one spouse is cheating on their taxes and the other rightly wants nothing to do with that. I also recommend filing separately if the spouses are estranged, when they are contemplating or in the processing of divorcing, or when they simply cannot agree on how to report their income and deductions.
I've seen these situations often enough where taking a bit of the tax hit now by filing a separate return can actually prevent years of heartache down the road.