A wedding day is the most romantic and memorable day in an individual’s life. However, many exchange their vows without fully understanding tax consequences and changes. Listed below are a few tips and options to consider:
The Status of Filing: To the IRS, the date you exchange the marriage vows has no affect your tax filing status as long as it was within the tax year. Regardless of the time, month, or date of the year that you say “I do,” the IRS considers that you were married the whole year.
The Choice of Tax Return Filing: As a couple, you have a choice to either file jointly or separately. Many couples prefer filing jointly, since it is easy and only requires a single Form 1040 and not two. There is also a higher chance of a better tax deal as a couple compared to separate filing. However, there are times when joint filing might not be the best thing to do. Simply go for an option that best works for both of you.
Marriage Bonus or Penalty: As a married couple, the first joint filing discloses whether you will enjoy additional tax benefits or will suffer a tax penalty. If your joint tax bill is larger than what it would have been had you filed separately, then you are definitely a victim of a marriage penalty. This is common to taxpayers whose income is pushed to the high income brackets. On the other hand, those couples with a huge income disparity can enjoy a marriage tax bonus as the low income earning partner pulls down the partner who earns more.
Withholding Matters: Working couples should review the withholding amounts deducted from their paychecks. The payroll withholding needs to be adjusted by either one or the pair to reveal the paychecks from both parties. The spouse with the higher income is encouraged to claim all allowances on his/her Form W-4 while the one with least income shouldn’t claim any allowances.
The IRA Contributions: Your retirement savings could be affected by your new joint income amount. The income limits are applicable to both tax-free-Roth account and deductable conventional IRA. Did you make any contributions prior to the vows? Please check to ascertain your eligibility. If not, take time and read the IRA contribution guidelines to maximize on your contributions, especially in the event that the marriage comes to an end.
Divorce: Marital vows are not cast on stone. You need to understand a lot about your taxes and financial standing in case of a divorce as well.
Other considerations include the options available for Flexible Spending Account (FSA), housing, and even tax options for same sex couples.