“ I usually claim her and our children as dependents, but didnt if it benefited us to have her file seperately this year?,”----> No, you can’t claim your spouse as your dependent. Spouses are not dependents. In general, it is better for married couples to file a joint federal tax return since more deductions and exemptions are typically available than when filing separately. However, there may be occasions when it actually is more beneficial for spouses to file separate returns. If one spouse has a high amount of unreimbursed medical expenses that exceed 7.5 percent of his or her adjusted gross income as of 2010, it may result in a higher overall deduction if the spouse itemizes deductions on a separate tax return. However, if one spouse itemizes, then the other spouse also needs to do so. If you file your return as MFS, then you lose certain deductions, exemptions; MFS taxpayers are not eligible to claim the tax benefit, i.e., Tuition and fees deduction ,Student loan interest deduction , Credit for the Elderly and Disabled, or Earned Income Credit oretc. Do not forget tht MFS has the highest tax rates just like Single filing status.
“Or what way to file to maximize our return?”-----> It depends on each taxpayer’s personal taxation situation. However, as said above, in general, The Married Filing Jointly filing status provides more tax benefits than filing separate returns, By filing a joint tax return, both spouses report all their income, deductions, and credits. Both spouses must sign the return, and both spouses accept full responsibility for the accuracy and completeness of the information reported on the tax return. The IRS cautions, "Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse