Joint filing, while common and often financially beneficial, comes with shared responsibility for all information on the tax return. Both spouses are equally liable for any mistakes or omissions, which could lead to significant financial and legal consequences.
The risks of joint filing
- Shared liability: Both spouses are responsible for the entire tax liability, not just half.
- Potential complications: Joint filing can be problematic, especially for couples with individual tax, legal, or credit issues, or significant separate assets.
Benefits and drawbacks of filing separately
Filing taxes separately may offer protection from a partner’s financial missteps, but it can also result in higher taxes. Separate filings can maintain financial independence, which can be particularly beneficial in situations like impending divorce or for those with prenuptial agreements and substantial individual assets.
Evaluating all filing options
There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child. Choosing the right status is crucial, as some, like Head of Household, have specific eligibility criteria.
Marital status and tax filing
Your marital status on December 31st determines your filing status for the whole year. Understanding the legal nuances of your marital status, including separation and divorce, is critical in choosing the correct filing status.
Weighing tax implications
It’s important to calculate taxes under both joint and separate filings to determine which option is financially optimal. Don’t just focus on the tax amount due; consider the broader implications of each filing status, especially if one spouse has potential tax, credit, or legal issues.
Considering future implications
Separate filings can simplify asset division in divorce and prevent the co-mingling of assets. It’s essential to move beyond the default joint filing approach and thoughtfully consider which filing status is best suited for your specific situation. To explore the best tax filing strategy for your specific situation, we encourage you to talk to a Signet advisor.