While the Internal Revenue Service (IRS) encourages couples to file joint tax returns, there are times when this is not beneficial. For instance, when couples are separated, a spouse is investigated for tax evasion. Or in a situation where one spouse earns a considerable amount of money than the other. And other similar instances.
Let’s examine some of the situations when couples should file separately:
1. Couples are separated
In a situation where a couple is separated; the separation is protracted and it things look like they may stay that way forever, filing tax returns separately should be considered.
2. Couples are divorcing
When a couple is in a process of ending their marriage, filing separately is inevitable. Here’s why: By filing separately the couple will avoid sharing tax bills or a refund.
3. A spouse is investigated for tax fraud or evasion
In a situation where a spouse is investigated for tax fraud or evasion, filing separately is necessary. However, it’s crucial to point out that there is a huge difference between tax avoidance, which is legal, and tax evasion which is illegal. You may ask, what recourse does the innocent spouse have? The innocent spouse can use the innocent spouse rule, a provision of U.S. tax law, which allows a spouse to seek relief from penalties resulting from a guilty spouse.
4. One couple earns more than another couple
Filing separately may be necessary when spouses do not fall under the same tax threshold. Like, say, one spouse earns millions of dollars and another earns less. In this case, it will be difficult to claim most of your expenses. Remember, while filing separately can protect another spouse, it doesn’t allow you to enjoy tax breaks. That’s why it’s advisable to always make sure that your reasons for filing separately are valid. Apart from that, when you file separately you forfeit major tax credits and deductions that are normally available for married couples who choose to file jointly. Weigh your options thoroughly and decide what will work for you.