In most cases, filing jointly offers the most tax savings, particularly where the spouses have different income levels. The \\"averaging\\" effect of combining the two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of taxable income and the other has just $15,000, filing jointly can save about $1,500 in taxes versus filing separately.
But, remember that filing separately doesn't mean you go back to using the \\"single\\" rates that applied before you were married. Instead, each spouse must use the \\"married, filing separately\\" rates. These rates are based on brackets that are exactly half of the \\"married, filing jointly\\" brackets, but are still less-favorable than the \\"single\\" rates. This means that the \\"marriage penalty\\" can't necessarily be eliminated simply by filing separate returns.
The Upside
There is a potential for tax savings from filing separately -- when one spouse has significant medical expenses, casualty losses, or miscellaneous itemized deductions. These deductions are reduced by a percentage of adjusted gross income (AGI). Medical expenses, for example, are deductible only to the extent they exceed 7.5% of AGI, and only the portion of casualty losses that exceeds 10% of AGI is deductible. Miscellaneous itemized deductions, which include a variety of deductions such as investment expenses (other than investment interest), non-reimbursed employee expenses, and tax return preparation costs, are deductible only to the extent their combined total exceeds 2% of AGI (often referred to as a \\"2% floor\\").
If these deductions are isolated on the separate return of a spouse, that spouse's lower (separate) AGI, as compared to the higher joint AGI, can result in larger total deductions. For example, if one spouse has $7,000 in medical expenses and the couple's joint income is $90,000, then only $250 is deductible on a joint return, because 7.5% of $90,000 is $6,750 (and $7,000 - $6,750 = $250). But, if the income of the spouse with the medical expenses is only $15,000, the deduction increases to $5,875 on a separate return, because 7.5% of $15,000 is only $1,125 (and $7,000 - $1,125 = $5,875).
The Downside
On the other hand, the amounts you can claim for exemptions and itemized deductions, including miscellaneous itemized deductions, are phased out (i.e., reduced) once your AGI goes above a certain limit, depending on your filing status. The limit is higher for joint returns than for separate returns.
For example, in the case of the phase-out of personal exemptions, the AGI threshold in 2000 for joint returns is $193,400, but only $96,700 for separate returns. Thus, if you file a separate return, your deduction for exemptions is phased out if your AGI exceeds $96,700. But if you and your spouse file a joint return, your deduction for exemptions doesn't begin to phase out until your AGI exceeds $193,400.