What Is a Separate Return?

A separate return is a Form 1040 or similar tax form filed by married taxpayers who are separately filing taxes with their spouses.﻿﻿ Separate returns are commonly associated with married couples who have initiated divorce proceedings, or with married partners who dwell in separate residences. A separate return is one of five options available to federal tax filers. The other four are as follows:

  • Single
  • Married filing jointly
  • Head of household
  • Qualifying widow or widower with a dependent child﻿﻿

Key Takeaways

  • A separate return is a tax form filed by married taxpayers who jointly files taxes with their spouses. 
  • Separate returns are often used by married couples heading for divorce, and by married partners who physically live apart from one another.
  • Separate returns have the power to split tax liability between spouses, which can be a shrewd practice in certain business situations.

Understanding Separate Returns

Separate returns are somewhat rare in the tax planning space. Most married couples elect to file taxes using the joint return, where they jointly complete one set of forms, listing their combined incomes and sharing any tax liabilities between them. ﻿﻿ But filing separately isn't solely advantageous for the divorce-bound and for couples with separate addresses.

Separate returns can also benefit married couples where one spouse has a large number of deductions compared to his or her spouse. Separate returns also split tax liability between spouses, which can be strategically advantageous in certain business situations.

Despite the many potential advantages of filing separate returns, there are possible downsides that should be taken into consideration. Chief among them: taxpayers who file separately surrender a large number of tax credits and deductions, including:

  • The earned income tax credit (EITC)
  • The dependent care credit (in most cases)
  • The adoption credit (in most cases)
  • Deductions for college tuition expenses
  • The lifetime learning credit for higher-education expenses
  • The American Opportunity Credit (AOTC)﻿﻿
  • The student loan interest deduction﻿﻿

In addition to giving up their right to the aforementioned tax credits, separate return filers also forgo the option to make Roth IRA contributions if they lived with their spouse at any time during the year and earned more than $10,000.﻿﻿ Finally, both of the spouses who file separate returns must agree to either itemize their deductions or to opt for the standard deduction. But one spouse may not itemize his or her deduction, while the other spouse takes the standard deduction route.﻿﻿

Other Reasons for Filing Separate Returns

Tax planning software or tax professionals may be able to 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 overall.

Taxpayers should consider the big picture, including their state tax liabilities, when deciding whether or not to file federal taxes separately.

It may also pay to file separately if one spouse has significant medical expenses or heavy personal casualty losses, or if they have made substantial charitable contributions during the year. The allowance for all three of these types of deductions is sometimes notably higher if each spouse files a separate return.