Like some much else regarding taxes, the most accurate answer may be “it depends.”

 

If you are like the “typical” couple, you will probably be hit by the “marriage penalty.”  The marriage penalty gets its name from the fact that many married couples pay more tax together as a married couple than they would as two single individuals living together without the benefit of marriage.  When two people marry, the second individual’s income is effectively added “on top” of the first individual’s income, which can push more of the couple’s income into a higher tax bracket than if they were filing individually.  And frequently, couples lose (or see reduced) certain itemized deductions and personal exemptions because at higher incomes these items are typically reduced or phase out.

 

For many couples, the “marriage penalty” is real.  Much less well-know, but equally real, is a “marriage bonus” for some couples.  This typically occurs for couples where one spouse either has no income or very little income.  It’s our “graduated” tax system that accounts for either the marriage penalty or the marriage bonus.  You simply pay a higher tax rate at higher income levels.  Two individuals usually mean a higher income level.  Congress has attempted to address this issue in recent years and may continue to do so.  Hopefully, for most taxpayers, the benefits of marriage far outweigh any tax marriage penalty they incur. 

 

If you choose to file separately, there are several restrictions you should consider.  One spouse can’t take the standard deduction if the other spouse itemizes deductions.  Both spouses must claim the standard deduction or both spouses must itemize.  In most cases, you can’t claim credit for child and dependent care expenses.  If you participate in an employer dependent care assistance program the amount of income you can exclude is limited to $2,500 instead of the $5,000 limit for those filing jointly.  You can’t claim credit for qualified adoption expenses.  You can’t take the earned income credit.  You can’t exclude from your taxable income the interest you earned from series EE U.S. Savings Bonds issued after 1989.  You can’t take credit for being elderly or disabled – unless you lived apart from your spouse for all of 2007.  You may have to pay more tax on the Social Security benefits you received (if any) in 2007.  You can’t deduct interest paid on student loans.  You may have a lower Child Tax Credit than you would have if you had filed jointly.  You can’t claim the passive loss exception for real estate.  You can’t claim the Hope Scholarship and Lifetime Learning Credits.  You can’t claim the $4,000 IRS deduction for a non-working spouse.  You can’t transfer funds from a traditional IRA to a Roth IRA.  You capital loss limit is $1,500 instead of $3,000.  And finally, the income levels at which personal exemptions and itemized deductions begin to be reduced or phased out are bout half the amount of joint filers.

 

The only way to tell if you will come out ahead by filing jointly or separately is to prepare three returns:  one joint return and one separate return for each of you.  You can then compare the “bottom lines” and decide which is the best course of action for you.