Getting Married? Here’s How It Affects Your Taxes
Chris Peden, CPA, CMA, CFM
I help small business owners grow their profits and cash flow and reduce their taxes by finding the holes in their financials and creating an action plan to plug them to create the business that funds their ideal life.
Congratulations! You’ve found “the one,” and as you move forward with wedding plans, don’t forget to plan how your nuptials will affect your taxes. As a CPA with extensive experience helping clients navigate the tax implications of marriage, I’m here to guide you through what you need to know. Let’s explore how getting married can impact your taxes and what steps you should take to ensure everything goes smoothly.
Determining Marital Status
Your marital status for tax purposes is determined as of December 31. If you’re married by midnight on December 31, you can file jointly for the entire year. This means even if you get married on the last day of the year, you’re considered married for the whole year for tax purposes.
Updating Your Withholding
Once you’re married, it’s important to update your W-4 forms with your employers or calculate new quarterly withholdings as soon as possible in the year you plan to marry. This ensures that the correct amount of tax is withheld from your paychecks, helping you avoid any surprises when you file your tax return.
Understanding the Marriage Penalty
The 2017 Tax Cuts and Jobs Act made significant changes to the tax code, including essentially eliminating the much-maligned “marriage penalty” for most couples. However, this penalty still exists for couples with combined taxable incomes over $600,000. If your combined taxable income exceeds this amount, you may owe more together than you would separately.
Filing Jointly vs. Separately
Most married couples fare better filing jointly than separately. Filing jointly often provides more favorable tax brackets and allows you to take advantage of a larger standard deduction. However, there are situations where it might make sense to file separately. For example, if one of you has high itemized deductions relative to your income, filing separately could be beneficial.
However, filing separately does come with drawbacks. It costs you several tax breaks regardless of your income, including the low-income housing tax credits, American Opportunity and Lifetime Learning credits, the income exclusion for U.S. Savings Bonds used for college costs, Roth IRA conversions, and the rental real estate loss allowance.
Changes to Deductions and Credits
After marriage, phase-outs for deductible IRAs and Roth IRAs, child and dependent care credits, college credits, and other deductions and credits can change. These phase-outs are based on your combined income, so it’s important to review how your new marital status will affect your eligibility for these tax benefits.
Notifying the IRS and Social Security Administration
If you plan to change your name after marriage, be sure to notify the IRS and the Social Security Administration. This helps prevent delays in processing a refund from your first joint return. It’s a simple step that can save you a lot of headaches down the road.
Practical Tips for Newlyweds
Implementing these tax strategies can seem daunting, but it doesn’t have to be. Here are some practical tips to help you get started:
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Update Your W-4 Forms??
As soon as you get married, update your W-4 forms with your employers. This ensures the correct amount of tax is withheld from your paychecks.
Review Your Filing Status??
Consider whether it’s more beneficial for you to file jointly or separately. In most cases, filing jointly is the better option, but it’s worth reviewing your specific situation.
Understand Phase-Outs??
Review the phase-outs for deductions and credits that apply to married couples. Understanding these can help you plan better and take full advantage of available tax benefits.
Notify Relevant Agencies??
If you’re changing your name, notify the IRS and the Social Security Administration. This will help ensure your tax return is processed smoothly and any refunds are not delayed.
Consult a CPA??
Tax laws and regulations can be complex and change frequently. Working with a CPA can provide you with personalized advice and help you navigate any changes that might affect your tax situation.
Action Items for Newlyweds
To ensure you’re making the most of your new tax situation, here are some action items to get you started:
By following these steps, you’ll be well on your way to maximizing your tax savings and keeping more of your hard-earned money as you start this exciting new chapter of your life. Remember, tax planning is an ongoing process, and staying informed and organized can make all the difference. If you need assistance implementing these strategies, feel free to reach out to my CPA firm—we’re here to help you every step of the way.
Are you tired of feeling confused and frustrated when it comes to understanding your financial statements? Take action now and enroll in our "Understanding Financial Statements" course to gain the clarity and confidence you need to keep more money in your pocket. Visit our website at https://peden-accounting-services.teachable.com/p/understanding-financial-statements to get started today!