Benjamin Franklin said, “There are only two certainties in life — death and taxes.” This applied to the entire LGBT community even before Massachusetts took the first step to expedite The (so-called) Apocalypse and legalized same-sex marriage.
Since then, the number of married gays and lesbian who can share in Social Security benefits and play Tax Loophole Twister just like our straight peers has increased. It went up even more following the Supreme Court’s Obergefell decision in June.
Now we’re spiraling into tax season — and getting a hold of your accountant will be more difficult than the Broncos not blowing it in the post-season. However, here’s the most important question newly married lesbian or gay couples should ask when filing your taxes: Should you file “married and filing jointly” or “married and filing separately”?
This is a decision straight married couples have made since, well, since the option was allowed. For most lesbian and gay married couples, the question is new, the difference is considerable and the decision is consequential. Here are some of the basics you should know if you and your spouse are getting ready to do your taxes together for the first-time.
The Pros & Cons of Filing Jointly
The perks for being married and filing jointly are significant. Considering the tax incentives offered to legally bound couples, the government appears to want people to be married. (Up until recently, it just wanted the “right people” to be married, but, we digress.)
First, there’s the “Marriage Bonus.” The marriage bonus happens when there’s income disparity between both spouses. If it applies, the marriage bonus could put the average income of the couple in a lower tax bracket because of the lower income earner.
Being married and filing jointly also affords a couple of tax credits that may not apply if you’re married and filing separately. These credits include, but aren’t limited to the Credit for Child and Dependent Care, Earned Income Tax Credits and education credits, such as the American Opportunity and Lifetime Learning Education Credits. Joint filers also have higher income thresholds when it comes to some deductions, which means they can qualify for certain incentives while making more money.
Credits and deductions lower the net total in taxes you pay the government, so qualifying for them can turn more of your hard-earned money into income.
Going through married life locked together at the hips and on your tax forms isn’t all roses, though. The biggest con with filing jointly is what’s called the “Marriage Penalty.” Married couples in which both spouses earn similar incomes can get bumped into a higher tax bracket than when they filed as individuals or if they chose to file separately.
Filing jointly also poses a risk if your spouse has tax problems. If your spouse has tax liens or owes the government money, for instance, you may become responsible for their burdens. If you file separately, you’re shielded from these and other potential problems.
The Pros & Cons of Filing Separately
Certain deductions that require a percentage of your Adjusted Gross Income (AGI) are more easily achieved with the lower AGI from filing separately rather than filing jointly. For example:
- Miscellaneous expenses that are more than 2% of your AGI may be deducted.
- Emergency expenses over 10% of AGI may be deducted.
- One of you may qualify to contribute the max for a Roth IRA, whereas jointly neither of you may qualify.
On the flip side of filing jointly, you’re off the hook for tax liabilities your spouse may have, if you file separately. As such, doing so could protect certain assets from the government and may be better for your marriage overall.
Of course, going solo, too, isn’t a bed of roses. Filing separately lowers deductions for Traditional Individual Retirement Account (IRA) contributions. While it’s good to invest in an IRA regardless, this reduces the immediate benefits.
Along with the other tax deductions and credits afforded to those couples who file jointly, you can’t take the student loan interest or tuition deduction if you file separately.
If this all sound confusing, some would argue that this is the point. Our advice, no matter how much you learn about taxes, is to consult with a tax professional. The IRS and certain companies offer means to file taxes for free, but it may be worth your time and investment to speak with a human to get all your questions answered.
More on Income Tax:
- How to File Your Taxes for Free
- How to Protect Yourself from Taxpayer Identity Theft
- How to Maximize Your Tax Refund