Financial Planner

Answer: C - “No joint liability” is a reason for Married Filing Separately (MFS). Taxpayers who are married at the end of the year can elect to file separately due to no joint liability and it provides lower taxes for some couples. The tax brackets for MFS are exactly half those for those Married Filed Jointly (MFJ). Spouses generally pay the same amount of tax under MFS as they would under MFJ unless one spouse has medical expenses, casualty losses, or employee business expenses subject to the percentage limitation based on adjusted gross income (AGI). Potential disadvantages include 1) if separate returns are filed and itemized deductions are elected by one spouse, the other spouse must also itemize deductions 2) increase in taxable Social Security benefits 3) credit losses 4) Loss of the special $25,000 allowance for rental real estate.