Five Tax Tips to Consider before Tying the KnotSubmitted by BCR Wealth Strategies on July 10th, 2018
After popping the big question, many couples dive straight into planning their wedding. There is much to do in preparation of two families joining together as one, and there are several things to consider; creating a budget, picking a venue, finalizing a headcount, and several other entities. However, there is an important piece of every soon-to-be-wed couple’s future that needs to be considered as well: taxes. While in the midst of preparing to say “I do” it may seem a little odd to be worried about taxes, but making this the first step in preparing for matrimony can lead to a successful financial future, and work miracles for a marriage.
Here are five tax tips to consider before tying the knot:
1. Determine how getting married is going to affect your tax withholdings.
To eliminate tax season surprises, you should prepare yourselves for the fact that your filing status will be affected by you getting married. It is not necessarily a negative effect. Many factors go into determining the rate at which you are taxed, and as a couple, you may have less combined tax liability. Furthermore, couples with higher incomes typically face the risk of a marriage penalty, reaching as high as 12%. It is possible, however, for couples to receive a large marriage bonus; the partner who receives a higher earning will see a decrease in his/her taxes as their taxes will fall into a lower bracket filing jointly.
2. Determine if you and your spouse are going to create a blended family (file jointly or separately).
When the time comes to file taxes, you and your partner need to consider whether it is in your best interest to file jointly or separately. This is especially important if the two of you are creating a blended family.
If either of you has children, then you should take into account the tax credit available per qualified child – up to $2,000 with $1,400 being refundable. If there are other dependents in the household - parents or others over the age of 17, then there is an additional tax credit to be earned. Keep in mind that the credits start to phase out at $200,000 for single filers and $400,000 for joint. To qualify for tax credit, you must have custody of your child/children for more than 50 percent of the year, so plans should be made with your ex-spouse in determining who is going to claim any children as their dependents.
3. If you are changing your name or address, then you should notify the Social Security Administration.
While you do not have to report name changes to the IRS, the Social Security Association should be notified before you file your next tax return. The same is true for your children; if their name changes due to the marriage, then similar steps should be taken to notify the SSA.
4. Determine if any special considerations need to be taken into account.
If you or your soon-to-be have investments, property, or the potential to receive an inheritance, then unique tax implications should be reviewed. Child support and alimony from previous marriages should also be taken into consideration; owing back child support could result in a joint filing return being used to pay the debt.
If you have qualified for passive loss in the past, you should be prepared to potentially no longer qualify. For both individual and married filers, a passive loss for real estate begins to phase out when earnings are at $100,000; the loss is completely phased out at $150,000.
For federal tax purposes, same-sex marriage is treated in the same way that traditional marriage is. Civil-unions and domestic partnerships are not treated the same, but certain states may have laws that require those couples to file jointly.
5. Determine any financial red flags that will require the assistance of a CPA.
If you or your spouse owes back taxes, and you live in a community property state, then both of your incomes could be vulnerable to the debt, even if it accumulated before the marriage occurred. If you plan to file jointly and don’t feel that you should be held responsible for your spouse’s debt, then you can file a Form 8379 to request your portion of the tax return be given to you. The same steps can be taken if you are considered the “innocent” spouse in a false claim deduction. Regardless, the IRS considers both incomes when determining the available funds for payment negotiation.
Even outside of tax planning there are considerations to be made, such as creating a will and discussing healthcare and insurance policies.
An engagement is a time to share the happiness of your upcoming wedding with friends and family, but is also a time to share the happiness of financial success that can be brought on by proper financial preparation with your spouse!