Married Filing Jointly

• Married filing jointly requires both spouses to record all of their income, exemptions and deductions on the same return. Since the tax rates are adjusted to reflect that the tax for a joint return is on two revenue streams, combining incomes should not cause a significant tax increase; however, it is possible that combining the two revenues could result in higher rates for both than if both people filed separately. Both spouses are responsible for the return, so if one spouse makes a mistake in the return's preparation or in paying how much he owes, both parties are liable. There are some exceptions to this joint responsibility, such as one spouse deliberately preventing the other from reviewing the return or forcing her to sign, but these are rare.
  
  

Married Filing Separately

• Married filing separately status involves a lot of special rules, which may make married filing jointly appear to be the more attractive filing option. If you file separately you cannot take the earned income credit, any education-related credit or deduction, or any dependent care credit. Your capital loss deduction limit as of 2011 is $1,500 filing separately as opposed to $3,000. Also, if your spouse itemizes deductions on her return, you must also itemize. However, you are not liable for your spouse's tax liability if you file separately, and you may have a lower tax rate than if you file jointly.
  
  One possible benefit from filing separately comes from itemizing your deductions. There are some deductions that are limited by adjusted gross income (AGI). Unless these expenditures exceed a certain percentage of AGI, you cannot take a deduction. The most common deductions limited this way are investment, medical and personal casualty loss expenses. By filing separately, individuals would have a lower individual AGI and would therefore be able to claim the deductions.
  
  There is one important caveat to this possible exception. If you live in a non-community property state, you must have paid the expenses entirely on your own using your own funds without your spouse contributing to claim the deduction. If your spouse contributes to the expenses, the amount is divided between the two of you. If you live in one of the nine community property states as of 2011 (Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin), then you must consult your state's rules regarding how to divide the expenses for deduction purposes.
  
  

Choosing Between Tax Statuses

• Which filing status to choose, given the differing rules on credits and deductions, will not be apparent just by looking at your and your spouse's financial condition. The only way to resolve what return you should file is completing both federal and state returns jointly and separately. While normally a time-consuming process, if you complete your return using software such as TurboTax, it should be relatively simple to switch back and forth between statuses to see which offers the lower tax liability.
  
  

Tax Tips

• For complex returns, it is always a good idea to consult with a certified public accountant or licensed attorney, as they can address your individual tax needs. Be sure to keep your tax records for at least seven years to protect against the possibility of future audits.