NEW YORK (MainStreet) — The first choice taxpayers are faced with is selecting a filing status. If you are legally married on the last day of the year you generally must file as either Married Filing Jointly or Married Filing Separately, although in certain situations a legally married taxpayer may be able to file as Head of Household.
It is usually better for a married couple to file a joint return. Separate returns often result in the same or a greater combined tax liability. However, in some cases it is better to file separate returns.
Because of the Adjusted Gross Income (AGI) exclusions for medical expenses and miscellaneous deductions, if one spouse has excessive expenses in either category applying the percent exclusion to the lower separate AGI could result in bigger deductions for that spouse.
You must consider the resident and non-resident state tax consequences when deciding how to file. Usually you must use the same filing status on your state returns that you do on your federal return. If you file a joint federal return you generally must file a joint state returns as well. Filing separately may cost $150 more in federal income tax, but it could save $300 in state tax. I have found that this happens a lot on New Jersey state returns.
And you must also calculate the Alternative Minimum Tax (AMT) when comparing your filing options. You may pay less combined “regular” income tax by filing separately, but one or both spouses may end up a victim of AMT.