The last thing you’re pondering when you lock eyes with your soulmate is how tying the knot will affect your taxes.
But now that you’ve had your beautiful wedding, have unpacked all of your gifts and returned from your honeymoon, it’s time to start thinking about your future together.
It’s normal to wonder how you’ll tackle finances as a couple. What is your joint income? Will you share a bank account? How will you start budgeting together?
And more importantly, what are the tax implications of marriage?
Here we have a written guide that will help you understand the tax implications of your new journey. Keep reading to find out how marriage might affect your taxes.
Tax Bracket Changes
One thing that might change is your tax bracket. When you’re married and filing jointly, your income is considered as one.
This may effectively boost one of you or both of you into a new tax bracket. This could work against you or for you, depending on your situation. That being said, there are usually more reasons and benefits for filing jointly.
Keep in mind that regardless of what day you were married on, if you’re filing jointly for that year, then you are considered to be married the entire year. Thus, even if you got married in December of 2018, if you’re filing jointly you are considered to have been married for the entirety of 2018.
When Should You File Separately?
Here are a few reasons why a couple might want to file their taxes separately.
1. You Have Significant Itemized Deductions
If one spouse has significant itemized deductions (like from a business or from being self-employed), and these itemized deductions are limited by your adjusted gross income, it might be in your best interest to file separately.
A qualified tax professional can look at both options for you and your spouse and help you determine which will save you more money.
2. You Want to Separate Your Tax Liability
When you file jointly, both you and your spouse are liable to pay back what you owe. If you feel that your spouse is overstating deductions or even omitting income, you may want to file separately so that you won’t be liable.
Do you feel as though you need more time to make a decision? Peruse the pros and consof filing for an extension and let us help you decide whether it’s in your benefit to give yourself more time.
3. You Live in a Community Property State
Depending on what state you live in, filing separately could have its benefits. If you live in a community property state like California or Louisiana, special rules apply when it comes to allocating income and deductions. Check with your tax specialist in order to determine if it would be better for you to file jointly.
Once in a while, it works for a particular couple to file separately. But generally speaking, it’s more beneficial to file jointly.
What Do You Have to Lose?
If you file your taxes separately from your spouse, there are some breaks and deductions you may be missing out on, such as:
- Child tax credit
- Student loan interest deduction
- Earned income credit
- Adoption credit
- Credit for elderly and disabled
- American opportunity credit
- Lifetime learning credit
The child tax credit, for example, states that taxpayers can claim up to $2,000 for each child in the household who is under 17 and is a citizen. The credit is reduced by 5% of adjusted gross income (AGI) when the income is over $200,000 for a single parent.
However, this number jumps to $400,000 for parents filing jointly. So if you and your spouse have a big difference in your salaries, it might be in your best interest to file jointly and have your income considered as a whole.
The earned income credit is a refundable tax credit that is available for low to moderate-income based individuals or couples. It can be even more beneficial for couples with children. You must meet certain criteria to qualify but in order to take advantage, it’s usually in a couple’s favor to file jointly.
If you don’t have any special circumstances or you aren’t sure what to do, chances are that it’s in your benefit to file jointly.
What Do You Have to Gain?
In the 2017 tax year, married couples who filed their taxes separately earned a standard deduction of $6,350. On the contrary, married couples who filed their taxes jointly earned a standard deduction of $12,700.
Separate filers cannot take the deduction for student loan interest. They also cannot take the deduction for tuition and fees.
Married couples that file their taxes separately are limited to a smaller IRA contribution deduction.
Separate tax returns MAY end up giving you a higher tax with a higher tax rate.
What Are the Tax Implications of Marriage?
How does getting married affect your taxes? There isn’t a simple answer to this question and every couple’s circumstances are different.
That’s why it’s so important to explore your options when filing your taxes as a new married couple. For some couples, it might work to your benefit to file separately. For many couples, it might be more beneficial to file jointly.
The tax implications of marriage can greatly affect the number you see on your return. That’s why it’s so important to hire a tax professional who can help you explore all of your options.
Call us today to receive a FREE initial consultation. Don’t have time to make a call? Fill out our quick form and send us a message. We’ll get back to you as soon as we can!
