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Married Filing Jointly or Married Filing Separately ?

Married Filing Joint vs. Married Filing Separately?

This is a question that I am asked frequently and my answer is almost always that there is no tax benefit if both spouses are generating the same amount of earned income. The only time you will see a significant amount of tax savings is when one spouse is working and the other is not or when one spouse generates significantly more income than the other spouse. The reason why is because the married filing joint filing status can keep these taxpayers from entering higher tax rates (see tax chart image below). California is a community property state so if you do decide to file married filing separately you will have to split most or all of your income and deductions 50/50. There are other scenarios when MFS in California could potentially save you some money by reducing taxable income, but this is usually the case when one spouse is working and another is retired and collecting social security, or when retired individuals are receiving other forms of taxable retirement income. Our firm always takes the MFS vs. MFJ filing statuses into consideration so feel free to ask us if it will benefit you.

Cons of Married Filing Separate

Using MFS status can disqualify you from a number of potentially valuable tax breaks.

* The right to make a Roth IRA contribution if your separate AGI exceeds $10,000.

* The child and dependent care tax credit.

* The deduction for college tuition expenses.

* The college loan interest write-off.

* The deduction for up to $3,000 of net capital losses (the deduction is limited to only $1,500 on a separate return).

* The American Opportunity and Lifetime Learning tax credits for higher education expenses.

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