Why Married Physicians Should Consider Filing Taxes Separately
By Jared Andreoli, CFP®, CSLP®
Tax season can be a complex balancing act, especially for married physicians filing taxes separately. While the benefits of Married Filing Jointly (MFJ) are undeniable for many couples, Married Filing Separately (MFS) can offer unexpected benefits for high-income earners.
As a CERTIFIED FINANCIAL PLANNER™ professional at Simplicity Financial LLC, I work with a lot of married physicians with student loans. Depending on their specific situation, I typically suggest they file their taxes separately from their spouse. For high-earning married clients, the reduction in student loan payments from filing separately most often outweighs the tax disadvantages of filing separately.
Let’s take a look at the key advantages for married physicians filing taxes separately.
Married Filing Jointly vs. Married Filing Separately
We can start by defining the difference between married filing jointly and married filing separately.
Put simply, when married couples file their taxes jointly, it means they merge all their taxable income onto one tax return. When filing separately, each spouse reports their own income, credits, and deductions on a separate tax return.
For married physicians, who typically have a higher income than the average taxpayer, their income combined with their spouse’s income can potentially push them into a higher tax bracket when filing jointly. The drawback of being in a high tax bracket is that, compared to taxpayers in lower tax brackets, you pay a larger portion of your income in taxes.
Many people assume that filing separately is going to be terrible for your taxes. But there’s actually not that big of a difference tax-wise, specifically in a community-property state like Wisconsin where everything is split 50/50.
Although married physicians filing separately do lose a few deductions, the tax brackets aren’t any different for married filing separately as they are for filing jointly.
Student Loan Implications
One of the bigger consequences of filing separately versus filing together is how it impacts your student loan repayments.
Interestingly enough, married physicians who file their taxes separately lose the student loan interest deduction. But that said, most physicians don’t qualify for that deduction anyway because their income is too high.
The good news is that the advantages of filing separately versus filing jointly far outweigh the deduction loss. Here’s an example: In a community-property state like Wisconsin, one of the nice things about filing separately is that your income is actually split directly in half. So the adjusted gross income (AGI) of a married Wisconsin physician filing separately and earning $300,000 annually with a spouse earning $100,000 annually will be $200,000 rather than $400,000.
As a result, student loan repayment calculations are based on the lower amount. Basically, you end up paying less for your student loans because filing separately cuts your AGI in half. There’s another nuance to consider when filing separately. For high-earners like physicians, it’s important to include a backdoor Roth IRA in their portfolio. This is because high incomes can circumvent the Roth IRA income limits by converting nondeductible traditional IRA contributions to a Roth IRA through a backdoor Roth IRA.
Lastly, I’ll say this. It completely depends on each client’s individual situation when deciding to file jointly or separately. I had a married client with student loans who hadn’t been required to recertify for three years because student loan payments were paused. Because of that, I suggested they file their taxes jointly since their student loan repayment calculation was based on their income from three years ago instead of the current year. The amount they saved on their tax bill was significant.
Get Help From Professionals
Deciding between married filing separately and married filing jointly is based on your individual situation, and there’s a lot to consider.
At Simplicity Financial LLC, we specialize in providing comprehensive financial planning for physicians with student loans. We take great pride in aligning our clients’ financial goals with their personal values. Do you have a fiduciary financial professional in your corner that specializes in serving physicians?
Get started by scheduling a free consultation, or reach out to us by emailing jared.andreoli@simplicityfinancialllc.com or calling 414-207-6473.
About Jared
Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and achieve their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full day meeting with clients who value his partnership to solve problems—big and small.
After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.
Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER™ (CFP®) and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.