Married Filing Separately: When It Makes Sense (and When It Doesn’t)

Most married couples file their taxes jointly because, in many cases, it leads to lower overall tax liability. However, there are situations where Married Filing Separately (MFS) can be the smarter choice. Understanding the pros and cons is especially important if you’re a YouTuber, Shopify store owner, dentist, doctor, or high-net-worth individual whose financial picture may involve business income, deductions, or liabilities.

Why Some Couples Choose to File Separately

While joint filing often maximizes deductions and credits, MFS can offer advantages in specific scenarios.

1. Protection from a Spouse’s Tax Liabilities

If one spouse owes back taxes, child support, or defaulted student loans, the IRS can seize the couple’s joint refund. Filing separately protects the other spouse’s refund from being applied to those debts.

💡 Example: If you are a dentist in Los Angeles with a thriving practice, and your spouse owes $25,000 in back taxes from before the marriage, filing separately allows you to avoid losing your refund to cover your spouse’s liability.

2. Suspected Tax Evasion or Compliance Concerns

If you’re concerned that your spouse may not be accurately reporting income, filing separately protects you from being held liable for their potential tax issues.

💡 Example: If you are an Amazon business owner and your spouse ran an e-commerce side hustle but underreported sales, filing MFS allows you, as the compliant spouse, to avoid IRS penalties tied to the inaccurate reporting.

3. Maximizing Itemized Deductions

In some cases, one spouse may have large deductions that are limited by Adjusted Gross Income (AGI). Filing separately may allow that spouse to deduct more than if the incomes were combined.

💡 Example: If you are a filmmaker who incurred large unreimbursed production expenses, filing separately may allow you to claim more deductions than if your spouse’s income had raised the AGI threshold.

4. Student Loan Repayment Considerations

For spouses with income-driven student loan repayment plans, filing separately may lower monthly payments since only the filer’s income is considered.

💡 Example: If you are a TikToker married to a physician with a high income, filing separately may help you qualify for a lower student loan repayment amount.

5. California’s Unique Tax Rules

California adds another layer of complexity. Couples may file separately to avoid the 1% Mental Health Services Tax on income over $1 million. If spouses file jointly and their combined income crosses $1 million, they pay the surcharge. But if each files separately and stays under the threshold, neither pays it.

💡 Example: If you are a high-net-worth individual earning a combined $1.2 million or more, filing jointly could trigger the surtax. By filing separately — with each spouse reporting under $1 million — you may eliminate the surcharge entirely.

California also offers a $1 million business income exclusion per return for Alternative Minimum Tax (AMT) purposes. Filing separately can sometimes double this exclusion.

The Downsides of Filing Separately

Despite the advantages, MFS is not always the best option. Here are the biggest drawbacks:

• Higher tax rates: Separate filers often face higher tax brackets at lower income levels.
• Loss of credits and deductions: You may lose eligibility for the Earned Income Credit, education credits, dependent care credit, and the deduction for student loan interest.
• Lower IRA contribution limits: MFS filers face tighter restrictions for retirement contributions.
• Complications for dependents: Claiming children or dependents can be more complex and sometimes disadvantageous.

💡 Example: If you are a YouTuber considering filing separately to protect against a spouse’s debt, you may lose out on the Child Tax Credit — which could outweigh the benefit of protecting your refund.

Key Takeaways

• MFS may help if you need liability protection, have large individual deductions, or want to reduce student loan payments.
• MFS may hurt if you rely on tax credits, IRA contributions, or lower tax brackets.
• California residents may see unique benefits in reducing surtaxes or maximizing AMT exclusions.
• Each situation is highly individualized — what works for a CPA for dental practice clients may not work for an online commerce CPA client.

How Velin & Associates, Inc. Can Help

At Velin & Associates, Inc., we help clients navigate these complex filing decisions every year. Whether you are a:

• YouTuber or TikToker with multiple income streams
• Shopify store or Amazon business owner managing online commerce
• Dentist or doctor balancing professional practice income
• Filmmaker or high net worth individual facing surtaxes and AMT

…our team evaluates your unique situation, runs the numbers, and helps you decide whether Married Filing Separately is worth it.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org