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Married in Texas: File Jointly or Separately?

  • 13 January 2015
  • Author: Cari Holbrook
  • Number of views: 16512
Married in Texas:  File Jointly or Separately?

In Texas, determining whether married couples should file jointly or separately on federal income taxes can be fairly simple. Texas is a community property state, which means the earnings of each married spouse are considered “joint” by default. So, in most cases, filing jointly is the obvious path. But are there exceptions? Of course!

Community Property in Texas

As touched on above, community property includes all the earnings of both spouses and the revenues from the separate property acquired during marriage. Try to separate out these earnings and you’ll need to separate them equally. For example, if the husband makes $80,000 and the wife earns $40,000, they can only file separately earning $60,000 each.

Texas, California, Louisiana, New Mexico, Arizona, Idaho, Nevada, Washington, and Wisconsin adhere to similar community property laws. In cases of community property, federal law will defer to the state’s rules.

Exceptions to Consider

Successfully filing as “Married Separate” can be a very complicated process. However, there are a few key instances in which the effort can potentially pay off. If you relate to one of the following instances, filing as “Married Separate” may be worth investigating:

  • One spouse owns significant property acquired before marriage such as a home, business, or investment.
  • One spouse owns or has acquired property through a gift or inheritance.
  • A special partition or exchange, like a prenuptial agreement, was made either before or during marriage.
  • One spouse is in a high-risk business, which means the liability of one spouse is much greater than the other. (In Texas, a good example would be an oil field worker as opposed to a teacher.)

These instances require the help of a tax professional to help you consider your eligibility, circumstances, risks and rewards. Proceed with caution.

Beware the Penalties

As we all know, the IRS gives away few freebies. Choose to file ‘Married Separate’ in Texas, and you will likely face:

  • A higher tax rate than a joint return.
  • Half the exception amount for figuring the alternative minimum tax.
  • No credit for child and dependent care expenses (or half the amount excluded from income under an employer’s program).
  • No earned income credit.
  • No exclusion of credit for adoption.
  • No education credits or deduction for student loan interest, tuition and fees.
  • Drastically reduced child tax credit, retirement savings contributions credit, deduction for personal exemptions, and itemized deductions.
  • A capital loss deduction limit of $1,500 (instead of $3,000 on a joint return).

These and other considerations are listed by the IRS here. It’s clear why filing separately in Texas is not only difficult, but it rarely pays off in the end. Contact us to discuss your specific options.

Image Copyright: osons / 123RF Stock Photo

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