This is probably going to be a stupid question but neither I nor my parents have a “tax person” so I turn to the collective wisdom of CC. [For what it’s worth, this isn’t my first time doing taxes or anything like that. I’ve been filing my own taxes since I was 18 but there aren’t filing options for singles so Turbotax has always walked me through my relatively simple situations ]
What is the difference between married filing jointly vs separately? Is there a reason one would do one over the other?
I think we have a pretty simple tax situation. First year married, I bought a house just before we married, low-moderate income (probably somewhere between 30 & 40k? There were job transitions for both of us which is why I’m not sure), no kids (the state doesn’t count our furchild ), he’s paying on student loans and I can claim some educational expenses, etc. The only thing that might even slightly complicate it is that my income for the last few months has been untaxed (stipend) and we both had health insurance pre-marriage through the marketplace. Our tax bill will probably come out around even.
I assume we’d do the married filed jointly but I am curious as to what, if any, difference there might be and why one might choose to pick one over another.
I’m not sure what causes this, but married filing separately often results in a higher overall tax bill. At least one (and probably all) of the tax software programs will show you the results for both married filing jointly and married filing separately after you’ve input your information.
Most file jointly. Some credits, etc. are not available if you file separately (child credit I think, AOTC for sure).
Why would someone do it? Sometimes it works out better for medical deductions if one spouse has very low income and large medical bills, that person might get a very big deduction that wouldn’t be available if they added the incomes together. Sometimes people do it if they are getting divorced and just don’t trust the other person(it usually does cost them more in taxes and credits to file separately, but better than tax fraud). If one party is unavailable (fled the country), if one party refuses to file (political reasons?)
I’m sure you should file MFJ if you have a simple tax situation, and it sounds like you do.
An example of a tax benefit you’d lose by filing married filing separately is right in your post - student loan interest deduction. Can’t use it if you do mfs.
twoinanddone - Thanks for this info: “Sometimes it works out better for medical deductions if one spouse has very low income and large medical bills, that person might get a very big deduction that wouldn’t be available if they added the incomes together.” That was our situation for 2015. Curses. It means I’ll have to run the taxes both ways!
I was going to say the software will tell you how you should file, but I see someone else explained that.
You don’t know until you know
One other piece of sort of tax advice is to contribute as much as you can to Roth IRAs while you are young and not making too much money.
Oh good idea, 1214mom. Setting up retirement accounts like that is one of my goals for this year. I have a 401k from an old job but that’s about it for us right now
Put the largest amount you can into retirement funds now. Getting in the habit of saving instead of spending, ie living a bit below your means will give you a cushion. Putting the money into unspendable accounts ensures saving for retirement. Decades later it will mean a lot. Could affect your ability to retire sooner than later. With your likely smaller income now doing a Roth (where you pay taxes now) may be the best form instead of delaying paying taxes. Hopefully your income decades later will make you glad you have money you can access that is tax free.
Feeling old. At your age I was figuring my debts died with me. Now have a nice cushion. Ages and stages.
We do live pretty below our means (luckily, neither of us are spenders), but most of our extra income has going towards savings (non-retirement) and paying off student loans. I used to have very nice savings but then I had back to back medical issues which pretty much wiped us out :/.
Neither of us are in jobs where employers match retirement savings or anything like that so it’s easy to be out of sight, out of mind. But I know it’s something we need to start when we’re young and I have a feeling my former-banker mother is going to get on my case about it pretty soon…
Another plug for a Roth now. There are so many advantages to a Roth over a traditional IRA that it would take too long to name them but you will be SO glad you did it.
Also agree that MFJ is almost always better. From the details you provided it would definitely be better in your situation but it would be good for you to figure it both ways so you can see why. Also, if you file Separately, if one of you itemizes, the other must and at your income level that would be a disadvantage. You might not even have to itemize if you file jointly. Standard deduction for MFJ for 2015 is $12,600. Do your interest and taxes come to more than that?
Now, during your lower income years as you finish your degree and while the stock market is down, you may want to consider rolling your old 401k into an IRA and then converting it into a Roth IRA. The conversion is taxable but now could be a good time to do this.
In addition, Mr. R. should consider a 2015 Roth IRA contribution (make by April 18, 2016) and then take advantage of the Saver’s Credit on your joint 2015 tax return:
In general, it is better to do MFJ. The rates for MFS are much higher than MFS, and are higher than Single. (Generally MFJ, HOH, S, the MFS). The exclusions and deductions can be lost altogether. ut is meant to be punitive and encourage MFJ. Run both ways, but MFJ usually is the clear winner.
MFS is best when you need a separate return: your spouse has a complex business that has unclear tax treatment or large depreciation or what have you, and you do not want to be on the hook. Also when divorcing. Ppl often file the last year as MFJ to avoid any lingering tax liability for the other.
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