Cameron Miranda
If you are in a common-law marriage, you and your partner can choose to file taxes jointly or separately. Currently, common-law marriages are recognized in Alabama, Colorado, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, and the District of Columbia. Couples in these states can choose a married filing status, which can affect tax rates, eligibility for tax benefits, and the standard deduction. While filing separately might be preferable for some couples, it may result in missing out on certain tax breaks and higher taxes.
| Characteristics | Values |
|---|---|
| Common-law marriages | Couples in a legally-recognized common-law marriage in the state where it began can choose a married filing status. |
| Filing status | Choosing the right filing status can affect your tax rates, eligibility for certain tax benefits, and the amount of your standard deduction. |
| Married filing separately | Couples who live apart but aren't legally separated can file jointly. There are no tax penalties, but there might be a higher tax rate and fewer tax breaks. |
| Single filing status | For those who are not married or are legally separated according to state law. |
| Married filing jointly | Couples in a legally-recognized marriage can file a joint return. |
| Tax credits and deductions | Some of the most common tax credits and deductions are unavailable on separate returns. |
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What You'll Learn
Common-law marriages and filing jointly or separately
If you are in a common-law marriage, you and your partner can file a joint tax return. This applies if you live in a state that recognizes common-law marriages, including Alabama, Colorado, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, and the District of Columbia. Even if you move out of one of these states, the federal government will still consider you married for tax purposes.
Couples in a common-law marriage can choose a married filing status, which will impact their tax rates, eligibility for certain tax benefits, and the amount of their standard deduction. It is important to consider your current living situation and financial goals when choosing the filing status that best suits your needs.
While married couples can file their taxes jointly or separately, there are some limitations to filing separately. For example, if you file separately, you cannot file as "Single." Additionally, some common tax credits and deductions are unavailable on separate returns, such as the exclusion of interest on certain U.S. savings bonds and the deduction for losses from rental real estate passive activities.
There are certain situations where filing separately may be beneficial. For instance, if one spouse is in legal trouble, such as tax evasion, filing separately can protect the innocent spouse from tax liabilities arising from the actions of the guilty spouse. Similarly, if one spouse refuses to file a tax return, the other spouse can protect themselves by filing a married-filing-separately return.
To determine whether filing jointly or separately is best for your situation, it is recommended to prepare the tax return both ways and compare the net refund or balance due from each method. This will help you understand the financial implications of each filing status and make an informed decision.
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The impact of separation and divorce on filing status
When it comes to filing taxes after a separation or divorce, there are a few key considerations. Firstly, legally separated or divorced individuals can file as "Single" or ""Head of Household" if they meet certain requirements. This means that you can no longer file as "Married Filing Jointly" and may need to adjust your deductions and credits. It's important to note that filing as "Head of Household" may be an option even in cases where the qualifying child has been kidnapped or is not living with you due to specific circumstances.
Secondly, if you and your common-law husband have joint assets, such as property, the way you report gains or losses on your tax returns will change. You must report your share of the recognised gain or loss on your income tax return for the year of the sale, as determined by your state law governing ownership of property. Additionally, there may be tax implications if you sell your main home, as you may be able to exclude a certain amount of gain on the sale, which differs for joint and separate returns.
Thirdly, separation and divorce can impact the deductions and credits you can claim. For example, if you lived apart for the entire year, you can deduct a certain amount of losses on a separate return, which differs from the amount allowed on a joint return. Additionally, when filing separately, both spouses must choose the same approach for deductions (either itemised or standard deduction). This can be a complex decision, and it's recommended to prepare the tax return both ways to determine the most advantageous approach.
Finally, it's important to consider the potential tax liabilities that may arise from separation or divorce. If one spouse is in legal trouble, such as tax evasion, filing separately can protect the innocent spouse from tax liabilities resulting from the actions of the guilty spouse. Additionally, if one spouse refuses to file a tax return, the other spouse can protect themselves by filing a married-filing-separately return.
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Tax credits and deductions for married filing separately
Married couples filing separately will face different tax credits and deductions than those who file jointly. In general, married couples who file separately may be unable to take advantage of certain tax breaks and may face higher taxes. However, there are some specific scenarios where filing separately may be beneficial.
- Standard Deduction: For 2024, the standard deduction for married couples filing separately is $14,600, compared to $29,200 for those filing jointly. These amounts will increase to $15,000 and $30,000, respectively, for 2025.
- Itemized Deductions: If one spouse itemizes deductions, the other spouse must also itemize and will have a standard deduction of zero. This may be beneficial if both spouses have significant itemized deductions.
- IRA Contributions: Couples who file separately can take deductions for their contributions to a traditional IRA. However, the income limits for taking these deductions are much lower than for those who file jointly.
- Medical Expenses: Filing separately may help clear the 7.5% threshold on adjusted gross income, allowing for medical deductions if only one income is claimed.
- Student Loans: If a spouse's student loan repayment plan is based on income, filing separately may reduce payments, especially if there is a disparity in incomes.
- Liabilities and Debts: If one spouse has significant individual liabilities or debts, such as student loans, filing separately can help keep their tax liabilities separate.
- Income Disparity: If one spouse has significantly higher income than the other, filing separately may prevent them from being pushed into a higher tax bracket.
Tax Credits and Deductions Not Available for Married Filing Separately:
- Child Tax Credit: The credit is lowered to $1,000 per qualifying child and is phased out at a lower income level than for joint filers.
- Child and Dependent Care Credit: This credit is generally not available for married couples filing separately.
- Adoption Credit: Most married couples must file jointly to claim this credit.
- Education Deductions and Credits: Credits and deductions related to education, such as the American Opportunity Tax Credit, student loan interest deduction, and lifetime learning credits, are typically not available for separate filers.
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Community property states and marital income
Community property laws view marriage as a partnership in which both spouses equally share the income and assets they acquire after the wedding. Nine states have community property statutes that affect a married couple's federal income tax return: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, marriage means that you legally share income, assets, and debts.
In community property states, divorcing couples are required to split all assets acquired during the marriage equally. This includes real estate and other property bought together, such as a home, cars, boats, furniture, or artwork. Bank accounts, pensions, securities, and retirement accounts are also included. Even an Individual Retirement Account (IRA), which is individually owned by law, is considered marital property if earned income is contributed to it during the marriage.
The existence of a prenuptial agreement signed before the marriage will almost certainly determine the division of property in a divorce, even in a community property state. A prenup normally overrides community property law and is accepted by a judge as proof that the couple agreed to a split of their assets that isn't necessarily 50/50.
In community property states, each spouse is taxed on half of the community income for the part of the year before the community ends. Any income received after the community ends is separate income, taxable only to the spouse to whom it belongs. An absolute decree of divorce or annulment ends the marital community in all community property states.
The concept of community property exists to protect spousal rights. It is important to note that the laws around who owns what in a marriage vary from state to state, and each state is responsible for its property laws.
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Filing separately to avoid a spouse's tax liabilities
If you are in a common-law marriage, you are considered married in the eyes of the IRS. Therefore, you cannot file as "Single". However, you can choose between filing as "Married Filing Jointly" or "Married Filing Separately".
There are several reasons why you might want to file separately to avoid your spouse's tax liabilities. Firstly, if you live in a community property state, special rules can impact how income, deductions, and other items are reported on your federal tax return if you and your spouse file separately. In such states, married couples who file separately generally must report half of their combined marital income with deductions taken out on their federal return.
Secondly, if one spouse has a large tax bill and the other is due a tax refund, filing separately can protect the refund. The IRS typically won't apply it to the other spouse's balance due.
Thirdly, filing separately can limit your liability for your spouse’s tax matters. For example, if you have high medical expenses and earned a certain amount from your job, you might be able to deduct these expenses by filing separately. However, if you filed together with your spouse, your adjusted gross income might jump, disqualifying you from claiming these medical expenses.
Additionally, if both spouses work and earn similar amounts, filing separately can result in a lower tax rate than filing jointly, which might put you in a higher tax bracket.
Finally, if you are in the process of divorcing or separating, filing separately can help to separate your financial lives and avoid post-divorce complications with the IRS.
It is important to note that filing separately can also come with significant drawbacks. For example, you may not be able to claim certain tax deductions and credits, or the amount you can claim may be lower. Therefore, it is recommended that you prepare your tax return both ways and consult a tax professional to determine the best course of action for your specific situation.
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Frequently asked questions
Yes, any couple in a legally recognised marriage can file separate returns. This includes common-law marriages in states where it is recognised: Alabama, Colorado, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, and the District of Columbia.
Filing separately can help protect an innocent spouse from tax liabilities if the other spouse is in legal trouble, such as tax evasion. It is also useful if you are subject to the Alternative Minimum Tax (AMT) on a joint return.
Filing separately can result in missing out on tax breaks and credits, and you may end up with higher taxes. Some common tax credits and deductions are unavailable on separate returns, such as the exclusion of interest on Series EE or I U.S. Savings Bonds for higher education expenses.
The best way to determine if filing separately or jointly is better for your specific situation is to prepare the tax return both ways and compare the results. You can also use a Tax Calculator to see estimates for your tax liability when filing separately or jointly.
