Should you file a joint tax return? Usually the answer to this question is a no-brainer. If you’re married, filing a joint return almost always results in the least amount of tax liability. Yes, there are some instances where filing separately will provide a lower amount of tax due. This often happens when the two spouses have very different incomes. And some couples find themselves in a situation where filing jointly will cause a debt payment to come due sooner and/or at a higher amount than desired (this often happens with student loans). But most of the time you’re better off financially to file a joint return with your spouse.
But what if you’re behind on filing and you’re going to owe a good bit of tax? If this is the case and you’re anticipating using one of the various resolution options available to you (full or partial payment plan, offer in compromise, etc.), the question of whether to file jointly or separately could be impacted.
When Filing Separately Might Make Sense
Closely examine how your filing status will affect the amount of tax you owe. This is especially true when multiple years are in play. For example, if most of the tax due is from a business or self-employment which is attributable to only one of the spouses, the returns should be prepared both jointly and separately and then compared. The tax difference between the two could be significant.
When tax resolution is inevitable, look at the couple’s assets and how they’re titled. If most of the tax would be due from one spouse and there are substantial assets titled in only the name of the other, great care needs to be exercised. You can reduce and/or eliminate the need to sell assets to pay off tax debt by choosing the proper filing status, and later by requesting resolution for the spouse with lesser assets to lose.
Unfortunately, Not Everyone Is Honest
Finally, if you are not the spouse who normally prepares the tax returns, you must at least be aware of what the returns show when you’re signing them. Once signed, you are jointly responsible for any tax due. Unfortunately, I’ve seen instances of one spouse being totally unaware of what the tax return showed, and later discovered that the other spouse was cheating the system by not having the proper amount of tax withheld from his paychecks.
A person can very easily keep and spend money that should’ve been used to pay income tax. When the return is filed, a large amount of tax is due, and now both spouses are responsible for repayment. If you find that you might be in this situation, don’t sign the joint return. Instead, seek a tax professional and file separately. This way, you are not held responsible for the tax your spouse failed to pay.
It’s not always a straightforward decision when deciding on the proper filing status. Please contact me if you need help determining whether filing jointly or separately is right for you. You can call me at (317) 804-1174 or send an email to email@example.com.