On the long laundry list of perks that come with being married, one of those is that you get to file your tax return with someone. A joint tax return, which is also known as "filing jointly," allows you and your spouse to claim expenses together, such as earned income credit, education benefits, and child and dependent care credit, explains Byron Ellis, certified financial planner with United Capital Financial Advisers. In most cases, according to Ellis, it will make sense to file jointly, as this is typically more beneficial in terms of tax rates.
However, there are good reasons to file separately, too. For example, if your spouse is self-employed, filing separately ensures that you're never on the receiving end of an audit for that business, explains Abby Eisenkraft, EA, ATA, ATP, CRPC, CEO of Choice TaxSolutions Inc. "Many married people like to keep their finances separate, even if it means paying more in taxes," she adds. However you and your spouse choose to file your taxes is completely up to you. As Eisenkraft puts it, there is no explanation required to the IRS—it's purely your choice. But if you're planning to file jointly, here are a few questions experts recommend asking yourselves first.
Which filing method will lead to the lowest tax bill?
One is not always better than the other. "The first time you are ready to file as a married couple do your taxes twice—once as two single returns and once as a married filing jointly return," recommends Ellis. "The lowest tax bill wins in most cases but watch out for the last consideration."
How much time do we want to spend preparing returns?
This is important whether you prepare your returns or pay a professional to prepare them. "Filing two separate returns can make things more complex and time consuming," explains Ellis. "You will need to fill out twice as many lines since you are doing two returns, and, in addition to more lines to calculate, community property states may require that complete community property allocation and adjustments form that has to be filed with each return."
What is the tax health of my partner?
"The last thing you want to do is get in the tax bed with someone that the IRS has on their bad list," says Ellis. That's why he recommends sitting down and having a thorough conversation with your spouse that includes taking a look at each of your past returns. "Look for any issues or history that could hurt you, for example if they have ever had to pay tax penalties or missed deadline," says Ellis. "It may make sense to continue to file individually until things are cleaned up."
Are you willing and able to accept responsibility not just for your taxes, but also for your spouse's?
Just like most other aspects of your life as a married couple, filing jointly means there's no "yours" or "mine," but rather "ours." In other words, if the IRS audits your tax return, you and your spouse will cooperate to pull together the documents needed to respond to the questions from the IRS, explains William Perez, senior tax accountant for Visor. "It means, if you lose the audit and the IRS assesses additional tax, that you and your spouse will cooperate to make sure the additional tax is paid in a timely fashion."
Are your payroll exemptions and allowances correct?
Do you have enough tax withheld, or do you always prefer to pay at the end of the year? Are you self-employed and have you paid your estimated taxes? "Different people have different styles when it comes to money—some people want a very large refund (earmarked for a vacation or perhaps their emergency fund), so they always have the most taxes withheld, while others don't want to give the government a loan and prefer to pay in April," explains Eisenkraft. "A surprise in the form of a huge tax bill is never welcome, especially in a new marriage."
Are you contributing to your 401(k)? Do you have an individual retirement account (IRA)?
If so, it's time to update the names of your beneficiaries—the people who will receive your retirement savings should you pass away. "How much do you want to save for retirement as a couple? What retirement plan options are available through your employer? Do you prefer pre-tax savings, where you pay less tax now and more later, or would post-tax savings work better for you, where you pay the tax now and get tax-free distributions later on?" asks Perez. "This is good to ask before filing your tax return, that way you can figure out whether and how much to contribute to an IRA, and what type of IRA."