June is a popular month for weddings. If you and your spouse are
newlyweds, you’re no doubt excited about your new life
together.
June is a popular month for weddings. If you and your spouse are newlyweds, you’re no doubt excited about your new life together. So it may not seem like much fun to think of something as mundane as taxes. Nonetheless, it’s a good idea to do just that – because your new legal status brings with it some tax-related issues and opportunities.
The filing status question
When you file your taxes, you’ll need to select a filing status – joint or married filing separately. Which should you choose?
Most couples do better by filing jointly – but not always. For example, filing separately could make sense if one of you has a lot of medical bills. You can only deduct medical expenses that exceed 7.5 percent of your gross adjusted income, so, if you file jointly, your larger combined income could negate your ability to claim these medical costs. But if you file separately, the spouse with the doctor bills may be able to deduct them.
You also may want to file separately if this is a second marriage for you or your spouse and you want to protect assets for children from a first marriage. If you are in this situation, we recommend that you contact your attorney to discuss the implications of combining assets and the creation of, or changes to, a will or trust in order to help protect such assets.
However, under most circumstances, you’ll probably be better off by filing jointly. If you file separately, you may miss out on various federal tax breaks, including college education tax credits, college loan interest write-offs and the child and dependent care tax credit. Furthermore, filing separately can restrict your ability to contribute to a Roth IRA or make deductible contributions to a “traditional” IRA.
You may also want to review your W-4 forms and withholding exemptions. You may owe more tax by filing separately, and may want to increase your withholding accordingly. If you plan to file a joint return, you may want to review your exemptions to determine whether they should be changed.
Name changes, retirement plans and debts
Your decision on a tax filing status is not the only issue you’ll face as a newlywed. Consider these items:
– Name change – If you or your spouse plan to change your name after you get married, contact the Social Security Administration to make sure your identification number reflects your new identity. If you don’t take this step, and you and your spouse file a joint return using the new name, the IRS won’t be able to match the name with the Social Security number. This could lead to some problems, including delayed returns and disallowed deductions.
– Retirement plans – It’s a great idea for you and your new spouse to go over your existing tax-advantaged retirement plans – 401(k)s, IRAs, etc. – to ensure you’re putting away the most money possible. By “maxing out” on these plans, you may be able to improve your tax picture – and build valuable resources for retirement.
– Debts – Your debts, and those of your new spouse, are now of concern to both of you. And it’s not just a matter of one of you “inheriting” these debts should something happen to the other – although that may certainly be true. By going over your student loans, car loans, credit cards, etc., you may be able to develop a strategy for reducing your overall debt load. And some loans, from a tax standpoint, are “smarter” than others. For example, while the interest on a student loan may be tax deductible, the interest on credit cards and car loans are not. Consequently, if you are able to buy or refinance a home, you may want to consider taking out a big enough mortgage to provide you with extra cash to pay off these “tax neutral” debts.
You should review your specific situations with your tax advisor or legal professional for information regarding, or issues concerning, the tax and legal implications of taking any action. By discussing these and other key issues, you can get your married life off to a less “taxing” beginning. Remember, open communication is the key – so keep talking.
