We’re a married couple facing the challenge of balancing our work obligations between Illinois and North Carolina. We rent in Illinois and have HSAs from both employers, along with a 401(k) with my wife’s job. I also have a 401(k) through my employer. We’re also aware of our aging parents, both in their 70s. After three years of marriage, we’re curious if it might be wiser to file our taxes separately.
I’ve recently begun investing in stocks at my wife’s workplace, and her current 401(k) loan stands at $29,000 with a 10.25% interest rate. Recently, I was diagnosed with cancer and am on leave at the moment. It’s crucial for us to make informed decisions about our finances as we think about the future. Despite having some banking connections offering discounts, we find it hard to build trust. With all these factors in mind, what would be the best path for us?
Experts generally recommend that married couples file jointly, claiming it often results in more tax benefits, but the choice ultimately lies with you. Consider consulting a tax preparer or financial planner to help navigate your situation, especially with future planning.
Regarding taxes, filing jointly tends to offer lower rates compared to filing separately. As CPA Lisa Green-Lewis points out, married couples filing jointly usually get better rates and have access to more deductions and credits. For instance, some credits, like the Earned Income Tax Credit, are only available if you file together.
According to Anne Nehlen, a CPA and professor, most couples benefit more from filing jointly because it avoids losing out on deductions available only for joint filings. Some deductions are set to change in 2025, but the current landscape already favors joint filings.
The main takeaway here is the greater number of tax advantages associated with joint filings. Green-Lewis explains that families with children may receive substantial credits, and generally, married couples filing jointly can secure better financial outcomes than if they were to file separately, which could earn them what’s sometimes called the ‘marriage bonus.’
Nelen adds that filing jointly streamlines the process since all income and deductions go on one return. If a couple lives in a community property state and files separately, they would need to divide all community income, which can complicate filings. In contrast, filing jointly simplifies that aspect.
However, if there’s a possibility of divorce or a need for privacy regarding income, filing separately might be prudent, especially if one spouse has high medical expenses or other unique situations. In such cases, it’s wise to consult a tax attorney well-versed in the applicable laws.
Mark Luscombe, a tax analyst, mentions that tax laws often penalize couples who file separately due to perceived risks of manipulating the system. Certain income brackets can incur penalties for separate filings, and some benefits might be less accessible to couples who choose to file that way. Thankfully, neither Illinois nor North Carolina is a community property state, which can simplify your scenario.
What financial professionals can help you?
Rob Barnett, an investment advisor, advocates seeking a fiduciary financial planner. It’s essential to have someone who can integrate your specific issues into your financial strategy. The matter of state taxes should be a priority because both states impose higher income tax rates. Your filing status may also affect how you approach state taxes.
Moreover, many tax preparers can provide insights into the differences between joint and separate filing statuses. The goal is to find the most beneficial outcome for your household, which could lead to one spouse paying taxes while the other receives a refund. Each year, you can reassess whether to file jointly or separately.
Working with a financial advisor who collaborates with your tax preparer can enhance your overall planning experience, particularly if you find someone impartial who doesn’t earn commissions and thus minimizes potential conflicts of interest.
Many Certified Financial Planners (CFPs) charge hourly rates ranging from $200 to $500 or project fees that can range from $1,500 to $7,500, depending on the complexity of the work. While financial planning can carry a hefty price tag, various organizations provide free advice to cancer patients.
If you’re encountering issues with your financial planner or need to find a new one, feel free to reach out with any questions or concerns.
The initial question has been edited for clarity. By submitting a question, you agree to have it published anonymously.
