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You may not be eligible for certain credits, including the earned income credit and education credits. A nonworking spouse won’t be able to contribute to an IRA. Don’t overlook . You may get a federal refund but owe a lot in state taxes. However, filing separately may be advantageous if one spouse owes money to Uncle Sam and the other is due a refund. Separate filing also may save you taxes if one spouse has significant medical expenses, casualty losses or miscellaneous deductions that must meet a percentage-of-income threshold before they can be claimed. Remember, too, that a husband and wife filing separate returns must use the same method of claiming deductions. If one itemizes, both must itemize. Filing jointly
You have a lower tax liability if there is disparity in the two incomes. You could be eligible for many credits, such as those for education and dependent-care expenses. It’s easier because it means filing one federal tax return instead of two. Marriage tax penalty
In the not-so-distant past, many married couples found their togetherness at tax time cost them. When they filed jointly, they ended up paying more than two taxpayers who lived together but were able to file their returns as single taxpayers. This inequity arose primarily because of the standard deduction and the progressive nature of tax rates. Two for one
Then there are the income tax brackets. Previously, married couples found more of their income was taxed at higher rates than single taxpayers. And their combined income on a joint return often pushed them into even higher tax brackets. Changes made – for now
This relief, however, is not forever. The marriage penalty tax changes apply only through 2010. There’s no single answer that fits everyone’s case. So make sure you figure your taxes both as married filing jointly and married filing separately. That way, you can make sure you file the way that will cost you the least combined tax. Related Links: Related Articles: SHARE: Bankrate.com Related Articles