My dad, who in our family is also called “The Tax Man,” raised me on 3 key financial principles:
1) Never, EVER get a credit card from the guys who hawk them in your college student union just so you get a free hat;
2) Shred every single receipt, tax form, bill, etc. that has your name or address on it;
3) As soon as you get married, enjoy the endless world of benefits that come with filing your taxes jointly.
I’ve clung to these principles, and have eagerly shared them with any financial novices I’ve come across along the way. So imagine my surprise when several friends announced this spring on Facebook that they’d decided to file separately on their 2014 FY taxes. “But that’s NEVER a good idea!” I immediately posted in response. What I got in return was a fast, fierce drilling down on why for some married couples, filing separately is the best way to go.
The Spouse Who Constantly Travels
One of my friends got married last summer, and fully anticipated filing jointly with her husband this year. But when they ran the numbers, the math just didn’t add up; they looked at what their return would be filing separately, and saw a modest benefit. But why?
Turns out, my friend’s husband travels a TON for work, and most of his travel expenses – some meals, baggage fees, transportation to and from the airport, etc – weren’t covered by his company. Those expenses that aren’t reimbursed can added to your Schedule A, provided they represent under 2% of your adjusted gross income. In my friend’s case, it took her husband from one tax bracket into a lower one.
The Spouse With High Health Care Costs
This is becoming increasingly common, thanks to a variety of reasons. First, many employers will no longer cover your spouse if they have a full-time job that offers health care benefits; second, health care reform means everybody has to have medical insurance, but doesn’t mandate or cap your out of pocket max. One of my friend’s chose to take a gamble on her 2014 health insurance coverage, and went with a plan that included a high deductible and out of pocket maximum. Then she broke her leg skiing out of state, and ended up in traction for ten days in a hospital far from home. Her out of pocket medical expenses were well over the 10% AGI threshold outlined by the IRS, so she was able to deduct them by filing separately from her husband, whose very high income would have made it impossible to reach that 10% zone.
The Troubled Marriage
I have a friend who has spent the last eight months in marriage counseling. She honestly doesn’t believe that she’ll still be married a year from now, so she decided to file separately, even though she’s still got a ring on it. Although this isn’t beneficial to her financially right now, she hopes that it could (A) expedite the divorce once she decides to file and (B) make it easier for her lawyer to draw up child support and alimony payments down the road.
The Complicated History
Another friend got married this year to a man who’d tied the knot twice before, and had children in both previous relationships. Between the alimony, child support payments, and the disparity between his income and his new wife’s, their tax attorney suggested they file separately. It wasn’t so much due to one single issue, but rather a compilation of issues.
Have you ever decided to file separately, even though you’re married?