Are you ready for the tax changes married life will bring?
Getting married is a huge life event and one of the most exhausting processes you’ll go through! With so much going on, you can’t blame people for forgetting about mundane things like taxes, but you don’t want to be caught out.
Taxes are confusing at the best of times, and marriage brings a number of changes to how you file taxes. The last thing you want to do is start married life with an audit!
Don’t worry, we are here to help. Read on for 5 essential tax tips that every newly married couple needs to know.
1. First Change Your Name on Your Social Security Card
The first thing you should do is change your name on your Social Security Card. You want the name on your tax returns is the same at the Social Security Administration. So, if you have changed your name because of marriage, you need to update all relevant agencies.
Your local Social Security Administration office will ask you to fill out a Form SS-5. Once you file this, you’ll get a new card with your updated name. Don’t worry though, your social security number will remain the same as it was before.
Not everyone changes their name though after they get married. If you didn’t, you don’t need to file this form or make any changes with the Social Security Administration.
There is a point to changing your name with the SSA before you try to change anything else. It can actually be a great time saver. When you change your driver’s license, bank details and utilities, you need proof. You’ll actually be able to use your SSA document as proof, which will make the whole process smoother.
2. Filing Separately vs Filing Jointly
Getting married has some major impacts on the way you file your taxes. Before marriage, your taxes will have been filed as either ‘single’ or ‘head of household’. After marriage, you will have to choose between “married filing jointly” and “married filing separately”. Most people will benefit from filing together.
When to File Jointly
To put it in simple terms, when filing jointly all of the tax thresholds and deductions are doubled. This means that under almost all circumstances, you will be paying the same amount of tax when filing jointly as you would if you filed separately. Not only this, but there are a number of tax breaks that are only available when filing jointly.
You may come across some people that still advise against filing jointly. This is because the tax system has historically penalized married couples. The tax brackets for joint and separate earnings have not always aligned. This meant that filing jointly pushed many couples into a higher tax band than if they filed separately, increasing their tax burden and even disqualifying them from certain tax credits.
Thankfully, tax reform has seen the tax bracket for single and married people brought back into line with each other for all but the wealthiest of married couples.
When to File Separately
But filing jointly isn’t always the best bet. There are situations where filing separately has its advantages.
The most common of these is when you have a large income discrepancy, and one of you has a federal student loan. This is because these payment plans are calculated from the income reported on your tax return. Rather than using your actual income figures, this will take the average of your joint earnings.
Imagine that your partner earns $100,000, but you only earn $30,000 a year. If filing jointly, then your loan payments will be calculated against half your joint filing of $130,000. But if you file separately, then your payment will be calculated only against your earnings of $30,000. The impact can be significant.
The difference this makes could be as much as $500 dollars each month. Over a year, this could save you a massive $6,000. If you are enrolled in the Public Service Loan Forgiveness Plan, then this will be even more important. In these situations, the smaller payments greatly reduce the amount you will pay back over the 120 payments required to have your loan written off.
3. Look at ALL Possible Tax Breaks
Getting married is a busy time, but don’t forget to check out all your tax break opportunities. If you take the time to research, there are some great concrete benefits you can make use of. It’s not worth missing out on!
Here are a few examples:
- Larger charity donation deductions
- If one partner is out of work, they can still qualify for a spousal IRA
- If you both work and have job benefits, you can pick and choose the most valuable from both plans
- Greater tax breaks for large medical expenses
- Opportunity to qualify for earned income tax credit
- If you have children – the opportunity to qualify for child tax credits
If filing jointly is the best option for you, your spouse’s tax breaks will apply to you too. Even if you only recently got married, you might be able to make use of these benefits to lower your bill. So make sure you both review your tax breaks from the previous year.
Look at investment losses, education credits, mortgage interest, and other breaks. Take the time to sit down and both go through it together to identify joint tax breaks.
It’s important that you both get up to speed with each other’s tax situation so you can get the best of it going forward. You might even discover a few extra tax breaks that you can sneakily qualify for before the end of the tax year. Using professional tax preparation software is a great way to make this easier.
4. Tax Rules Are the Same for Same-Sex Marriage
In the historic US Supreme Court’s Obergefell v. Hodges, the decision legalized same-sex marriage. On June 26, 2015, same-sex couples won the right to get married in all 50 states.
The tax implication of this is that same-sex couples also have to follow the same federal tax laws. If you’re in a same-sex marriage and aren’t sure of your tax obligations, the IRS has an FAQ page you can check out. It’s archived now but it’s a good place to start to get clued up.
Stay up to date with all changes to taxes for married couples though to make sure you’re not caught out in the future. You’ll also want to keep an eye on the current political climate.
Most states have taken on the Supreme Court’s and IRS’ decisions. But with what’s going on in Washington D.C you want to keep an eye for any changes. Also, keep clued up with your state’s capital and tax department too.
5. Buying or Selling Homes
After marriage, a whole new chapter of your life begins. For many people, this brings a major change in their living situation.
Once married, your joint income may now be large enough to allow you to buy your first home together. Or if you both owned property beforehand, you might look to sell your individual properties to buy somewhere new together.
Mortgage payments on a home you own are deductible on your tax return when married. These class as an itemized deduction and will reduce your tax burden. Also, when married the amount of capital gain you can exclude from income when selling goes from $250,000 to $500,000.
But you need to note that if only one of you owned the house before marriage there is a catch. The enhanced $500,000 exclusion will only apply if both of you live in the house as your main home for a minimum of 2 years.
Start Your Newly Married Life off Right
As you can see, there are a number of things you need to know and do when you start doing your taxes as a newly married couple. Although it may seem confusing, as long as you follow our tips, you’ll be on the right side of the law, and may even save money!
Make sure that you keep your records up to date, and know the correct way to file your taxes. That will keep you in the IRS’ good books! Also, be sure to research all of the tax breaks that available to you as a married couple. You won’t be eligible for everything, but every little saving helps.
If you found this article useful, be sure to check our other posts. At whiteoutpress.com we have a whole host of articles to help you with your finances. Whether you want to deal with debt, save money or earn more, we can help.