What is a Separate Return

A separate return is a Form 1040 or similar tax form filed by a married taxpayer who is not filing jointly. Separate returns are more common among married couples who are divorcing, or married partners who live apart, although there are other uses.

A separate return is one of five choices for federal tax filers, the others being single, married filing jointly, head of household and qualifying widow or widower with dependent child.

BREAKING DOWN Separate Return

Separate returns are somewhat rare, as most married couples choose the joint return, in which they jointly complete one set of forms and list their combined incomes and share liability for any taxes owed.

However, all couples are entitled to file separately. This is sometimes advantageous for situations other than divorce or living apart. For example, it sometimes results in less total taxes owed when one spouse has a large number of deductions and the other does not. Separate returns also split tax liability between the spouses, which is helpful in certain business situations.

The downside is that taxpayers who file separately give up a large number of tax credits, such as the earned income credit and the dependent care credit. They are also ineligible for the adoption credit, and tax-free exclusion of both U.S. bond interest and Social Security benefits. Filers of separate returns also forgo the option make Roth IRA contributions or to convert their traditional IRAs to Roth IRAs.

Moreover, deductions for college tuition expenses, the lifetime learning credit for higher-education expenses, and the student loan interest deduction all are excluded for separate filers.

Another important rule for separate returns is that both married filers either must itemize their deductions, or both must take the standard deduction.

Other Cases Where Separate Returns Might Make Sense

Tax software or a tax professional may pinpoint specific situations in which a married couple will pay less in taxes by filing separate returns. For example, one spouse may have a laundry list of itemized deductions related to a limited liability corporation or other small business arrangement that flows through to their personal taxes. If the number of itemized deductions is capped by adjusted gross income, then a separate return sometimes saves the couple money.

Other situations where it pays to file separately are when one spouse has significant medical expenses, large charitable contributions, or heavy personal casualty losses. The allowance for all three of these types of deductions sometimes is notably higher if each spouses files a separate return.

Another important consideration for filing separate returns is the impact on state taxes. A situation that favors separate federal returns sometimes makes a joint return look better when considering the total tax picture.