|My spouse and I are filing separate returns. Can we both itemize our deductions? If so, how do we split the deductions?|
When spouses file separately, both must use the same method of claiming deductions. That is, either both parties must itemize, or both parties must take the standard deduction. If you choose to itemize, it's important to know how to divide your deductions.
If your filing status is married filing separately, you typically report on your income tax return only your own income, expenses, credits, and deductions. Therefore, if you paid for a doctor's appointment out of your separate checking account, you would claim that deduction on your return. Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. Different rules may apply in community property states.
You should also be aware that the amount of your total itemized deductions will be limited or phased out if your adjusted gross income exceeds a certain level: $83,400 if you file separately in 2009 (up from $79,975 in 2008), $166,800 for all others (up from $159,950 in 2008).
Note: For tax years beginning after 2009, the limitation on itemized deductions for higher-income individuals is repealed by the Economic Growth and Tax Relief Reconciliation Act of 2001. The repeal is being phased in over a five-year period (the first year of the phase-in period was 2006). When the repeal is complete, a taxpayer will no longer have to reduce the amount of his or her itemized deductions when AGI exceeds threshold amounts.
Often, married couples have a lower overall tax liability if they choose to file jointly. This is not always the case, however. If you are unsure which filing method results in the lowest tax liability, you should determine your tax liability both ways before filing your return.
For more information, see IRS Publication 17 or consult a tax professional.