Married Filing Separately Tax Planning


Tax Issue

In general, married taxpayers living in the same household usually file joint returns. Tax preparers tend to assume the Married Filing Jointly filing status is best for married taxpayers living together and that the few returns that may save a little bit of tax by Married Filing Separately (MFS) are not worth the extra tax preparation fees that would apply for filing two separate returns.

Applicable Tax Law

  • Any taxpayer that was married at the end of the tax year can file MFS. A spouse does not need permission from the other spouse to choose to file a separate return.
  • Spouses who file separately are not responsible (or help liable) for their spouse’s reporting or tax.
  • If a taxpayer files MFS, and his or her spouse itemizes, the taxpayer cannot claim the standard deduction. A taxpayer filing Head of Household (HOH) can claim a standard deduction if his or her spouse itemizes and files MFS.
  • Each spouse claims his or her own exemption. Exception: A taxpayer filing MFS or HOH can claim an exemption for his or her spouse if:

            1.) They are still married at year end,

            2.) Spouse had no income and is not filing a return, and

            3.) Spouse cannot be claimed as a dependent by another taxpayer.

  • Community property laws apply to married individuals living in community property states who file desperate returns. Each spouse must report half of combined community income and deductions, in addition to his or her separate income and deductions. For example, each spouse reports half of his or her own W-2 wages and half of his or her spouse’s W-2 wages on his or her MFS return.
  • For non-community property law states, each spouse claims his or her earned income, and income on his or her assets, when filing MFS. Each spouse must meet the criteria for any particular deduction in order to claim it and can deduct amounts that he or she paid. If one spouse meets the criteria for a deduction, and the other spouse paid, no deduction is allowed on separate returns. Expenses paid for a joint account that holds earnings from both spouses are presumed to have been paid equally by the spouses unless one spouse can show otherwise.
  • For non-community property law states, medical expenses are deductible by the spouse who paid if the spouses were married when service was provided or when the expense was paid.
  • For non-community property law states, medical expenses of children are deductible if the child was a dependent when service was provided or when the expense was paid. If the child falls within the rules for children of divorced and separated parents, each parent can deduct medical expenses he or she pays for the child even if the other parent claims the dependency exemption.
  • For non-community property law states, if the separate state returns are filed, each spouse deducts sir or her own state and local taxes. If a joint state return is filed, and the state has a joint and several liability law, each spouse deducts the amount he or she paid. If the state has no such law, each spouse deducts a proportionate share of the tax (taxpayer’s gross income divided by combined gross income).
  • For non-community property law states, if spouses own more than one home jointly, each spouse can deduct mortgage interest from only one home unless both spouses consent in writing, then one spouse can deduct interest from both homes.
  • Spouses can amend separate returns to file jointly. Once a joint return is filed, taxpayers cannot amend the return to choose to file separate returns after the due date of the return. Exception: A personal representative can choose to file a separate return for a deceased spouse up to one year from the due date of the return.

Tax Planning Strategies

Professional tax software usually has a module that allows tax preparers to compare tax resulting from filing jointly versus filing separately. It usually only requires simple coding of each item of income and deduction during the data entry process to enable the program to do the comparison (such as entering T for taxpayer, S for spouse, and J for joint). In particular, the following set of circumstances may indicate the taxpayers will save tax by filing separate returns.

  • Both spouses have income, but only one spouse has medical expenses and/or unreimbursed employee business expenses.
  • Both spouses have income and have children, but their AGI phases out a portion or all of the Child Tax Credit.
  • Taxpayers live in a state with more favorable tax rules for filing separate state returns. Even if filing separate causes the combined federal tax liability to increase, the state taxes saved may be greater than the amount of the federal increase.


Possible Risks

  • A taxpayer will pay higher tax preparation fees filing two separate returns versus one joint return. Thus, and tax savings realized by filing separate may be offset with higher tax preparation fees.
  • Some (but not all) tax benefits and credits are disallowed using the MFS filing status when both spouses live together, including:

            1.) Earned Income Credit,

            2.) Elderly or disabled credit,

            3.) Child and Dependent Care Credit,

            4.) Adoption credit,

            5.) Education credits,

            6.) Student loan interest deduction,

            7.) Tuition and fees deduction prior to 2012, and

            8.) Exclusion for U.S bond interest.


  • Some (but not all) phase-out ranges are less favorable using the MFS filing status when both spouses live together, including:

            1.) IRA contributions when one or both spouses are active participants in an employer         retirement plan,

            2.) Calculation to determine taxable Social Security benefits, and

            3.) Special rules for allowing rental real estate losses when taxpayer is an active participant in the rental real estate activity.

Court Cases


Court Case: The taxpayer was married during the year in question. His wife timely filed a federal income tax return using the MFS filing status. She claimed the standard deduction rather than electing to itemize deductions. The taxpayer sent documents to the IRS for the same year than including a Form 1040, Schedule A, Schedule EIC, a warning against removing any documents, a 38-page protest, a 17-page exhibit, and copies of Forms 1099-R. The taxpayer reported taxable income from the 1099-R’s on the Form 1040. He also claimed itemized deductions on Schedule A, a Child Tax Credit, an Earned Income Credit, and an Additional Child Tax Credit. The taxpayer also reported an amount on the “amount you owe” line of the Form 1040. The taxpayer signed the Form 1040 without deleting anything from the declaration that the taxpayer has examined the return and accompanying schedules and that everything is true, correct, and complete. However, the taxpayer also wrote “under protest, without prejudice” in the space for the spouse’s Social Security number and in the spouse’s signature line.


The 38-page protest included numerous arguments in which the taxpayer challenged the authority of the IRS over him and his obligation to pay income tax. These arguments included that he is not an “individual” subject to taxation, that only wages paid by the government are subject to taxation, that non-government employees should not be taxed at the same rate as government employees, and that applying tax rates to him is unconstitutional and constitutes a “crime of extortion and perjury”. The 38-page protest also demanded that the IRS answer ever point raised or be deemed to have admitted each point, and further, that the IRS could thereafter neither raise a defense to the contents of the protest document nor claim a tax liability against the taxpayer.


The IRS treated the documents as an invalid tax return and did not process them. Based on the Forms 1099-R, the IRS issued a Notice of Deficiency for tax due, along with late filing penalties. The court agrees with the IRS that writing “under protest, without prejudice” on the Form 1040 and including tax protest arguments along with the Form 1040 invalidated the documents as a tax return. Based on the fact that no valid return was filed, the court needed to decide whether the taxpayer was entitled to itemize deductions. Under IRC section 63, if married individuals file separately and one spouse elects to itemize deductions, then the other spouse is not entitled to the standard deduction. In this case, the taxpayer’s wife timely filed a valid return for the year in question and claimed the standard deduction. The court said it did not need to address whether the taxpayer was entitled to itemize deductions because no valid tax return was filed. Section 63 and relevant regulations do not authorize the election to itemize deductions unless a return is filed. Since the taxpayer did not itemize deductions on a valid MFS return, the taxpayer’s wife was allowed to claim the standard deduction on her MFS. (Lange, T.C. Memo 2005-200)