Tom Wheelwright, certified public accountant and CEO of Wealthability, joined Cheddar News to explain what the benefits are for married couples to either separately or jointly file taxes.

Closing Bell

When to File Taxes Jointly or Separately in Marriage

Tax season is upon us every Monday. Here on closing Bell, we are tangible tax filing tips to make sure that you get the biggest refund check possible. And today we're discussing filing taxes as a married couple, you might assume that you should always file your taxes jointly with your spouse. And while it makes sense, most of the time, there are specific instances where you could save big bucks by separating your filings. So joining me now to break it down is to wheel right, CPA and C Financial consulting firm. Wealth, Ability Tom, thanks so much for joining and talk to me about why joint filings do tend to be a better option when it comes to married couples. Well, normally you end up with a lower rate if you filed married filing jointly because you, you get just a slightly better tax brackets, especially if you're both making good income. Um, but there are times when it does make sense to file separately for sure. And what are some of those instances where it might make more sense to file separately? Well, a any time that you have, you know, like student loan, uh, deferment or anything that is based on one spouse's income. So it's that spouse and their income. It makes sense. Ok, I need to keep my income low and, and I don't want to add my spouse's income to my income. So, uh, student loan deferment is one of those. Another time is, let's say that you, um, you have one spouse has a lot of medical expenses. Well, of course, we've got the 7.5% limitation on medical expenses. So if that one spouse has the high medical expenses, then they might get more of that deductible simply by filing, married, filing separately. So there are those times it's pretty rare, but it's pretty easy to run the numbers and see which way is best for you a lot of people to do have student loan debt. And so if that is you in a relationship, how should you approach that? Two people are married together? Some with student loan debt? Well, certainly the one with student loan debt needs to say, look at their taxes and actually calculate, what would my taxes? What would my student loan deferment be? Not my taxes, but I have to look at both my, my taxes. What are my taxes if I do married finance separately compared to the benefits of say a student loan interest deferment, which is what we've been seeing a lot of uh lately um during the pandemic is we still see this interest um deferment on student loans. So you really have to calculate both sides because you might get hurt on the tax side, but you might make it up on the loan interest side or the loan payment side. What about for business owners, Tom? How should they approach filing taxes? So, so business owners for the most part should actually set up as a corporation or limited liability tax as a corporation and probably should be an S corporation. That's a pass through entity, they get special tax benefits, by the way, um, over 20 states now allow special tax benefits for, uh, pass through businesses like an S corporation or a partnership. And you can end up actually with lower tax rates as well as special tax deductions. So when, when you've got a business, that's the time that you need a tax professional on your side. If you've got more than that W-2 and you actually have a business, you probably want to sit down with the CPA or another tax professional. So when should you consider filing, creating an LLC, Tom versus an Corp? Well, so most states, an LLC is better from an asset protection standpoint, you know, you're protecting your other assets from your business. Businesses tend to attract um lawsuits. So we want to protect our other assets like our home and our stock investments from any kind of lawsuit on the business. So that's when we might uh form a limited liability company. But the one thing that a lot of business, business owners don't understand is that you can be a limited liability company and be taxed like an S corporation. So, just because you're not a corporation doesn't mean you can't be an S corporation for tax purposes. It's a very simple election to make and something that your CPA can do in about five minutes. All right, Tom Wright C P and C financial consulting from wealth ability. Thank you for joining.