Should we file taxes as married couple or single/married?

[bigote2032]

Hello Mustachians -

Requesting help of CPAs or anyone with good tax experience specially filling taxes as couple or single married.

It's been always a mystery the advantages and disadvantages of filing as married couple or married single.  Most to the info I have found states that you should not file taxes as married couple if the difference in income between the two persons is large.

Our income info (two sources of income for me and one for my wife):

- I make $150K a year pre-tax (this is W2 regular full time job with 12% pre-tax going to 401K)
- I make $23.5K a year pre-tax on-the-side contract/job Schedule-C (IRS basically takes away half of this from me since is no W2 and I pay estimated taxes every quarter)
- Wife makes $30K a year pre-tax (this is W3 regular full time job with 10% pre-tax going to 401K)

Questions

1. Does it make sense to file as married couple?
2. Why? / Why not?
3. If we file together as married couple, can we know exactly who gets a refund and who owes?
4. Since I have never done this , not sure if Turbotax will tell us who among the two of us is has an item that is causing us to owe a lot of money or IRS refunding us.  Individual filing is so easy, no room for misinterpretations.

We have always kep our finances separated before and after getting married and would like to know the reasons why we owe money to IRS or get a refund (can be because of me or her have having a bad setup of allowances in W4, me or her gaining a load of money in the stock market and selling stock?

Thanks for your help!

[MoseyingAlong]

Your state taxes may impact this decision. So what state are you in?
If you are in a community property state, the income earned while married is allocated 50/50 so it doesn't usually matter if one spouse earned more of it.

Do you prepare your own taxes?
If yes, I suggest you prepare them both ways and compare the bottom lines. This is a great way to learn what affects what in our crazy system, such as credits.

[bigote2032]

We don't pay any state taxes since we live in Washington.

[MDM]

1. Does it make sense to file as married couple?
2. Why? / Why not?

Probably, because you will likely have a lower tax bill.

3. If we file together as married couple, can we know exactly who gets a refund and who owes?

No, because, for the most part, the tax system treats an MFJ couple as a single entity.

4. Since I have never done this , not sure if Turbotax will tell us who among the two of us is has an item that is causing us to owe a lot of money or IRS refunding us.  Individual filing is so easy, no room for misinterpretations.

If you enter things correctly TT will correctly tell you whether MFJ or MFS is favorable.  But for MFJ the last $1K of spouse A's W-2 income will be taxed exactly the same as the last $1K of spouse B's W-2 income, so it's neither spouse's "fault".  If you want to point fingers about "his" or "her" capital gains, go ahead, but....

We have always kep our finances separated before and after getting married and would like to know the reasons why we owe money to IRS or get a refund

Whether the two of you owe more or get a refund when filing is largely irrelevant.  Worry more about your total tax paid for the year.

[MoseyingAlong]

Okay, a quick search says that Washington is a community property state. That means your earned income is shared 50/50. i.e. each spouse is allocated half the wage income and half the taxes withheld so it really doesn't matter if one earns a lot more than the other.

If you decide to fine MFS (Married Filing Separately) for some reason, you each should report half the income, not just what you individually earned.

This would be a different discussion if you were not in a community property state.

[Sibley]

This is pretty easy. Do it both ways and compare. If you use Turbo tax or similar, you can just have separate files going. There are certain things that get pretty sharply limited if you do MFS vs MFJ.

[dandarc]

Generally, with a large income difference such as you've shown, you'll come out ahead filing jointly.  However, there are scenarios where separately makes sense.  Managing an income-based student loan repayment or if one spouse (usually the lower-earning spouse) has large medical bills are the two that jump to mind.

[Livingthedream55]

Try it out both ways if you like. I you have kids or any qualified education expenses you'd miss out on a bunch of credits when filing separately.

See Turbo Taxes response:

Is it better for a married couple to file jointly or separately?
Generally, filing jointly will give you a bigger refund or less taxes due. When you file separately, your tax rate is higher and you won't be able to claim:

Education benefits
Earned Income Credit (EIC)
Child and Dependent Care Credit (usually)
Adoption Credit (usually)
The same benefit married filing jointly couples get for personal exemptions, itemized deductions, the Child Tax Credit, and capital losses (all of these deductions are reduced by half)
The standard deduction if your spouse is claiming itemized deductions.
On top of that, if you live in the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you have to deal with community property allocations and adjustments, which adds extra work and complexity to your tax preparation chores.

Tip: Only taxpayers who were still legally married as of December 31, 2017 are able to file as marrieds, whether jointly or separately.

Filing Jointly means you file one tax return. When filing separately, you file two tax returns.

[bigote2032]

Thanks all for your replies!

Few points based on your responses:

- Regarding turbo tax and having it telling me the numbers both ways.  Is this a new option? Last year I don't remember seeing turbo tax recommending me the best option? Is there a mode I need to choose before entering all my info or something?
- About Tax Caster, same question.  Entering all the info manually is a pain so I wonder if TT and Tax Caster have a simple way to show you the numbers in both filing ways so I can choose the best without to having to enter info for each filing option.
-  Regarding not knowing who among us is the one messing up our taxes and resulting in owing large sum, I think that we can easily know by checking what happens if we both file separately and based on that we can tell who is affecting the tax filing negatively.

Thanks!