Ah, the joys of newly attached individuals looking at each other with puppy dog eyes and the glorious ambitions of leading a life are only found in the best romance novels. Of course, we all want this wonderful picture for ourselves and wish only the best for all our readers, but (only a small but) you do need to consider the bigger picture. At Green Valley Tax Services we can help you with your life decisions about taxes and keeping more of your wealth.
Merging your life with someone else is a contract. There is love and incredibly beautiful moments just as much as there are challenges and financial worry. As you start your life together, you can be excited to share a tax return. However, there are several things that newlyweds need to consider when filing their tax returns. We have put together a list of tips that will help guide you through the process and make sure everything is done correctly. Green Valley Tax Services is here to help.
Why Start Now?
Understanding the tax implications of marriage is important, no matter how much you love your spouse. It's very possible that you could end up paying more in taxes than you would have if you were single.
The good news is that there are ways to avoid this fate and even get some money back from the government to maximize pre-tax wealth for retirement savings. It is important to start as soon as possible collecting and combining your assets, so you have clear ownership rights and a pathway forward. Maybe even meeting with a tax specialist from our team at Green Valley Tax Services is in your future before saying the big “I Do.”
The point is staying ahead of the timetable goes a long way to lowering your stress so you can focus more on who is cooking dinner and family planning than what status to file as in the upcoming year.
Okay, let’s look at some of the changes you need to account for now that you are officially hitched.
1 – Filing Status
If you're married and filing jointly, the IRS will consider both spouses to be responsible for any tax due on a joint return. This means that if one spouse has a large refund coming back and the other owes money, both parties are responsible for paying or receiving payment.
If you decide to file separately instead of as a pair, each person is responsible for paying their own taxes and can claim all their own deductions and credits on their return. This well depend if you are in a community state or not. The community state has different rules if you live together for six months or more.
The downside of this? If one spouse makes significantly more money than the other, they could potentially lose out on some valuable tax benefits by not filing jointly.
There are also numerous deductions that you cannot claim if you are filing separately, including the EIC (Earned Income Tax Credit), American Opportunity Credit, and Lifetime Learning Credit. For those students getting married, you will need to file jointly to write off any student loan interest, and, most importantly, if your spouse files through itemized deductions, you have to as well.
2 - Name changes
Changing your name after marriage you must contact Social Security to make the changes otherwise you will not be able to file your tax returns with your new name. Changing your name will require you to change your driver's license, bank accounts, and any accounts you have that have your name.
You want to be clear from day one about name changes because changing your name is not simple and changing it back may require you to take legal action. Make sure this is what you want to do as you will need to change your driver’s license, passport, credit cards, bank accounts, and other institutions you use.
3 - Dependents & Child Tax Credits
If you're supporting a dependent, they can't be claimed as a dependent by another taxpayer. Generally, this means that if someone else claims them (like their other parent), then you can't claim them either. But there are exceptions.
Think about the total cost of your dependents. If one spouse is covering more than half of those costs, they may want to file separately. Otherwise, the two of you will be able to write off those expenses.
You also want to file jointly if you are seeking out the child tax credit. This can mean thousands of dollars off your tax obligation. The current credit is $2,000 per child under the age of 17. Those are a lot of deductions in the right place!
4 - Retirement accounts
You now have two retirement accounts to consider. If you have a 401(k), it's important to know how to roll over the money into your new spouse's IRA account. You can either do this directly with your old employer or go through an intermediary service.
If your spouse doesn't already have an existing IRA account, then one of the first things on your list should be opening one. You'll want to decide whether or not both partners will contribute; if so, how much? This can help determine which type of IRA works best for each person: traditional vs. Roth.
With two people earning an income, you have a great chance of maximizing your retirement savings. Be sure to keep a close eye on any potential deductions or tax-free benefits as you pursue this avenue.
5 - Credits & Deductions.
The government loves it when we get married. The tax codes make it easy to take benefits from being a married couple like:
- Instead of only having charitable donations be no more than 50% of your income, the limit is increased depending on your filing status.
- The whole process is more straightforward when you combine your status with less paperwork and cost.
- Your spouse doesn’t experience an estate tax when inheriting all your assets.
- With two earners, you get more variety of benefit packages from employers and private institutions.
Other Considerations
Once you get married, you will want to do a bit of spring cleaning to your financial portfolio. Start by making the name change official and updating any forms (W-4, 1099s, etc.) with the appropriate stakeholders. If you are feeling particularly ambitious, fill out form 8822 with the IRS and alert them to the change.
Weight the benefits and downsides of each filing status to land on the one most appropriate to your personal situation, and hire a professional to review your books and previous debt before signing that marriage contract.
Most importantly, don’t forget those deductions! Everything from dependents to the interest you pay on a mortgage payment needs to be deducted to maximize your pre-tax wealth.
Finally, never forget you can write off some wedding expenses like:
- Donating your wedding dress to a 501(c) 3 recognized organization.
Where to Start
Now that you're married, it's time to start thinking about taxes, and we can help. Our team at Green Valley Tax Services is thrilled to help out newlyweds as they enter an exciting time in their lives.
We will sit down with you in person or virtually to review all your current documents and get you set up for a lifetime of success and honest financial communication. So let’s get your marriage off on the right foot and book a consultation today!