For many married business owners, tax season brings up a common question: Should we file jointly or separately? Especially with soon-to-be or recently married business owners, people often question whether it is best to combine financial lives for tax purposes. While there are situations where either option could be more beneficial, the important part is understanding the difference between filing joint or separate returns. Since tax outcomes vary based on individual circumstances, working with your accountant is a great way to determine whether filing separately or jointly is better for you.
Impact of Filing Status
The IRS provides each taxpayer with five separate filing options: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Surviving Spouse. While we will focus on the two options for married couples, all five could affect your taxes differently. Married couples, in particular, are offered the option to either file together on one tax return or separate tax returns. Therefore, owners need to consider their individual financial situation and whether adding their spouse’s finances into the mix would be advantageous.
While on first pass, it may seem as filing separately could be advantageous, I’d argue only in a few specific cases is the Married Filing Separately status actually preferable. The devil is most certainly in the details. This is why, in my opinion, an accountant should run both scenarios. Ask him or her to calculate both your tax liability separately as well as together. Then you will be able to compare all the income, deductions, credits, tax, etc., that can be affected by your filing status.
Business owners oftentimes struggle to grasp the business and personal income tax dynamics of their own income. Naturally, this leads people to think they cannot file jointly due to their complexity, especially when a spouse has a business of their own. Other times, people may claim that they “make too much money” to file jointly. To understand which status is truly most beneficial, we must understand when it is best to use one or the other.
Married Filing Jointly
Instead of filing two separate returns, business owners who choose Married Filing Jointly (MFJ) can relatively simplify their household’s tax situation. Especially when one spouse is predominantly responsible for the finances of the household, combining all income, deductions, credits, and taxes could not only save money but save time as well. For owners who already need to file a return on the business side, from a practical standpoint, it may just be simpler to file one combined “personal” return instead of two. I don’t need to explain the headache of gathering all the different documents needed during tax time. As a result, I don’t think it is a stretch to argue you’d rather do that once than twice.
At least on the federal level, the income tax system itself is arguably designed to benefit married couples who file jointly. The MFJ income tax brackets are essentially double the brackets for MFS. So, from a strictly income perspective, if you and your spouse make the same income, in theory, your tax liability would be the same. However, the deductions and credits change the game. For example, a Married Filing Separately (MFS) spouse who chooses to itemize deductions can do so only if the other spouse also itemizes, even though they file separately. This rule could result in a higher overall tax liability if one spouse has fewer deductions, forgoing the $30,000 MFJ standard deduction (in 2025).
There are also certain credits that married couples only have access to if they file a joint return. Credits are preferable because they reduce taxes dollar for dollar, whereas deductions only reduce taxable income. For most married filers, MFJ is required for the Earned Income Tax Credit, Child and Dependent Care Credit, Adoption Credit, Lifetime Learning Credit, American Opportunity Credit, and others. A given owner may not normally take advantage of all of these credits, but even one or two can be the difference in thousands of dollars in taxes.
Married Filing Separately
From a tax bill perspective, there could be specific situations where an individual is entitled to a larger deduction based on their income. For example, people with large enough medical expenses could qualify. Filing separately and itemizing deductions, knowing they both forfeit the standard deduction, may still create a larger tax deduction against their income. The key to these situations is to control the total level of income on the tax return. Those on income-driven student loan repayment plans could be a better example. These plans adjust their monthly payments by the total income you bring in, and adding your spouse’s income could disproportionally increase those payments.
Once more, it is important to work with an accountant who can run the numbers both ways, as separate and joint returns. It may be the case that giving up all the deductions and credits of MFJ in one year may be worth it, and then the next year, it is not. So, take the time to understand where both individuals’ income levels are, as well as what deductions and credits you are entitled to. Do this on the federal and state levels to get a clearer view of your total tax liability.
From a liability perspective, sometimes married couples want to distance themselves from the tax liabilities of their spouse. Married couples who file jointly are responsible for the tax liabilities of both parties, including any tax on income from a business, rental property, or others filed on the personal tax return. For one reason or another, people who are concerned about avoiding IRS liability that their spouse may be responsible for can elect to file separately. Then, from a tax perspective, they may only be responsible for their individual tax return and taxes.
Filing Taxes
Choosing the right filing status doesn’t have to be overly complicated. When people get married and question how to combine their financial lives, it is important to understand the nuances. There could be times to file separately, such as one spouse with a specific circumstance to which a large deduction applies. Generally, filing joint returns can simplify the tax process as well as result in less taxes. Talk with your accountant and advisor about what path is best for you.
TC Falkner 