With April 18 just around the corner, chances are you and your spouse are knee-deep in tax work. Most couples file jointly to take advantage of various benefits but depending on your situation, you may want to file separately.
We tapped Kelly Phillips Erb, a Philadelphia tax attorney who blogs at Forbes, for some pointers on when to do this. (Sadly, love doesn’t conquer all when it comes to the tax man.)
1. When a Spouse Has a Tax Liability
Though your spouse’s liability won’t carry over to you, it could throw a wrench in your taxes if you file jointly, Erb says. “It can make filing taxes complicated because you have to file an injured spouse claim” if something goes wrong. For example, if your husband owed back taxes but as a couple you got a refund and the IRS decided to take it, you’d be prompted to file an injured spouse claim. This may help get part of your refund back.
Your spouse’s back taxes could also impact their credit score if the problem gets bad enough. The government could make a claim on your property until the debt is repaid, which is known as a tax lien. This will show up on your spouse’s credit report and could make it harder for them to borrow money in the future. (You can see how a tax lien and other factors may be hurting your credit by reviewing two of your free credit scores on Credit.com, which are updated every two weeks.)
2. When a Spouse Can’t Be Trusted
“When you file a return, you sign under penalty of perjury,” Erb explains, noting taxpayers vow to report everything to the letter. “If you sign the return knowing they tend not to be forthcoming, you’re putting yourself at risk.”
Erb recalls a client who dealt with this issue for 15 years and “ended up with a liability in the millions she couldn’t pay.” However, she had signed a return with her husband claiming things were just fine. The IRS eventually chased both of them down for the money, even after they separated. “When you get married, you like to think everything’s rainbows and unicorns,” Erb says, but “don’t file if you think they’re not being truthful. Ignorance is not an excuse.”
3. When a Spouse Lives Abroad
“There are some tax reasons why you might file separately, but as a rule, most people file separately for non-tax reasons,” Erb says. However, if one spouse has a different residency — not just between states but in another country entirely — it “might be advantageous to file separately, because depending on the situation, you could possibly lose credits or other tax breaks that you might not want to.”