What You Lose By Checking Married Filing Separately

What You Lose When You File Separately

There can be compelling reasons to use the Married Filing Separately tax filing status. This is especially true for non-community-property states, but sometimes it can be a good idea to file separately in community property states too, such as when a couple is in the process of getting a divorce.

Before checking the Married Filing Separately box on your tax return, though, you want to be aware of the tax breaks you stand to lose, which include:

• The child and dependent care tax credit
• The adoption credit
• The Earned Income Credit
• Tax-free exclusion of U.S. bond interest
• Tax-free exclusion of Social Security benefits
• The credit for the elderly and disabled
• The deduction for college tuition expenses
• The student loan interest deduction
• The American Opportunity Credit and Lifetime Learning Credit for higher education expenses
• The deduction of net capital losses
• Traditional IRA deductions
• Roth IRA contributions

When there’s a divorce in progress, I often recommend filing separately even if it means the couple as a whole pays higher taxes. The reason is that even if the divorce decree requires the wife to pay the taxes, this only gives the husband the right to sue her if she doesn’t follow through. The IRS doesn’t give a rat’s ass what the divorce decree says. If you sign a joint return, you have what’s called Joint and Several Liability for the taxes owed.

Joint and several liability means the IRS can collect up to 100% of the tax debt from either party. If the wife agreed to pay the taxes but doesn’t follow through, the IRS can legally collect 100% if the tax due  from the husband.

If you should find yourself in a predicament like the husband in the above example, all is not lost. You may be able to file for Innocent Spouse Relief.