Tying the knot can be a wonderful experience for some, or a past life event that’s better forgotten for others.
But no matter one’s romantic status, if and when taxpayers tie the knot the tax ramifications shouldn’t be ignored. Getting married can lead to some serious tax changes, but coordinate a better financial future for both spouses will be beneficial.
First things first: The IRS will need you to make all necessary address and name changes. That can be done by filing the appropriate forms with the Social Security Administration and other agencies. Also, getting the change of address form filled and turned in promptly with the Post Office will help prevent refund checks from getting kicked back to the IRS.
Another important move is to decide whether both spouses should file jointly or married filing separately.
Typically, spouses file joint tax returns, leaving them both liable for the contents of the returns and resulting tax bills.
But spouses don’t always have to file jointly. Newlyweds can also file as married filing separately.
Here’s how it works: Married filing separately allows each spouse to sign and file their own individual return. Each spouse’s tax bill is determined by their own income, and each spouse can take their own credits and deductions. However, if one spouse chooses to itemize their deductions, then both have to.
Filing jointly enables both spouses to combine their incomes. Also, newlyweds filing jointly can deduct their combined deductions and expenses together. This makes sense for choosing itemized deductions rather than going with the standard deduction. Expenses like healthcare, mortgage interest, and other miscellaneous costs can reduce taxable income by a good amount.
Going with the married filing separately status can work for a couple situations. One is where one spouse doesn’t trust what the other is up to when it comes to their income and there’s a suspicion that the other spouse is avoiding taxes. If you don’t want to be held responsible for a spouses shady tax situation, married filing separately is probably the way to go.
Married filing separately can also work for newlyweds or spouses who have a sizable imbalance between their incomes. If one spouse earns significantly more than the other, and the lower-earning spouse usually has significant medical expenses, then married filing separately would allow the lower-earning spouse to deduct those medical expenses as they’d be more likely to exceed 10 percent of his or her adjusted gross income.
Filing jointly is the status that more often saves both spouses more in taxes, but a tax professional can run the numbers both ways and give a more accurate picture.
Also, if your spouse has a more complicated tax situation, seeking professional help may be a good idea. A tax situation is simple when earning income under a W-2, but if a spouse is self-employed, an independent contractor, or in another unique tax situation, that can have ramifications for both. Let a tax professional work that out.
In most cases, it’s beneficial to file jointly. But, the marriage penalty (the higher tax rate incurred by married couples due to their income being combined) can kick in. This usually occurs when both spouses earn a comfortable living (typically more than $130,000 annually), but can be minimal if there’s a wide discrepancy between their paychecks, something a tax professional can determine.
Weddings mostly take place in the summer and late-spring, bringing two people’s financial situations together as one. When that happens, make sure to think about the impact on taxes – as no one can take out a divorce against the IRS.
How have you handled your taxes after tying the knot? Comment below or tweet us @StopIRSDebt!
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