My sister is in her 80s, and she recently remarried, but her less-wealthy husband insists on filing a joint tax return. Should she be concerned? 

United States

Dear Tax Guy,

My sister recently remarried. She and her husband are both widowed, in their 80s and they each have three grown middle-aged children. She has a special-needs trust for a disabled adult child who lives in a step-up care facility.

I believe that my sister’s assets exceed those of her husband. They live in her new husband’s home in California, which has a mortgage; she sold her own former family home before remarrying. She also has her share of an inheritance that she and I received from our parents years ago, split evenly between us. 

This is their first year together and she prefers to file taxes separately to avoid commingling their finances. He wants to file jointly. I’m happy for my sister finding a companion, but I am concerned by the fact that she feels pressured to file jointly.

Are there risks to filing jointly in this situation?

Worried Sister

Dear Worried,

Great question. This has got to be one of the top 20 questions asked of tax practitioners. 

One note: Being “married/filing separately” is different from filing as a single person, which applies to those who are unmarried or legally separated under state law.  Now, let’s compare married filing jointly vs. married filing separately.

Potential benefits of filing as married filing jointly status:

Tax liability is generally lower when filing jointly as compared to married filing separately, particularly if both spouses are not in the same income-tax brackets. Filing jointly enables you to take the maximum advantage of the graduated tax rates structure at the federal level and, in some cases, at the state level too.

Filing jointly can also help you take advantage of certain tax breaks that you otherwise couldn’t if you are filing separately. Some of the following tax breaks are available to joint filers, which may or may not apply in your scenario:

  • Student-loan interest deduction
  • Education credits
  • Child and dependent care credit
  • Medicare payments for Part B and Part D are generally lower when filing jointly

Potential benefits of filing as married filing separately status:

One of the primary reasons — and it does not save on taxes — why married couples file separately is that filing separately splits joint liability for what’s reported on the tax return. If you file jointly, both spouses are liable for taxes fully. So if both spouses don’t want responsibility for each other’s finances, “married/filing separately” may be the preferred approach. 

From a tax perspective, it may make sense to file separately under the following specific circumstances:

  • Medical deductions: If one spouse has significant medical expenses, filing separately may help you deduct these, since you may exceed the 7.5% adjusted gross income (“AGI”) limit if only one spousal income is taken into account. 
  • Business owners: For business owners that are eligible for the Sec 199A deduction of 20%, the deduction may be limited if one’s income is too high so may benefit if only one spousal income is taken into account.

Generally, one should prepare returns under both scenarios and then decide which filing status is more advantageous. Married couples can switch between the two filing statuses each year and also can amend to file a joint return if filing separately. What you cannot do: If you file jointly you cannot amend to file separately. 

State filing-status rules vary by jurisdiction and need to be taken into consideration. There can be differences depending on whether or not one lives in a community property state. 

Varun Vig is partner at Eisner Advisory Group LLC in New York City.

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