Summertime means longer days, warmer weather and of course, the peak of the wedding season. For many newlyweds, getting married means joining households and combining finances for the first time. Saying “I Do” can have a major impact on how you manage your money, including how you file your taxes. If you and your significant other are planning your upcoming nuptials or if you’ve recently tied the knot, the following tips can help you avoid problems at tax time.
Update Your Information
When you file your taxes, you need to make sure that the names and Social Security numbers you include on your return match what’s on file with the Social Security Administration. If getting married means a name change, you’ll need to report it to the SSA by filing Form SS-5 to apply for a new Social Security Card. You can get the form by visiting the Social Security Administration website, stopping by your local SSA office or calling 800-772-1213.
If you and your new spouse are moving in together for the first time, you’ll also need to make sure the IRS has your new address by sending in Form 8822, Change of Address. You’ll also want to update your address information with your local post office. If you’re headed back to work once the honeymoon’s over, you’ll need to update your information with your employer to make sure they have the correct name and address on file. If you don’t, you run the risk of not receiving your W-2 or other important tax forms when they’re mailed out.
Check Your Withholding
If one or both of you works, you’ll also want to check your federal income tax withholding to make sure your employer is taking out the right amount of taxes. You’ll want to change the withholding on your W-4 from “single” to “married” to make sure you get the proper exemption. If you think combining your income may push both of you into a higher tax bracket, you can use the IRS Withholding Calculator Tool at IRS.gov to help you figure out how much needs to be withheld. You’ll need your prior year tax returns and recent pay stubs to figure out how many allowances you should claim. Keep in mind that if you don’t withhold enough tax during the year to cover either 90 percent of your current year’s tax liability or 100 percent of your prior year’s liability, you may get hit with a penalty when you file.
Decide How to File
Once you get married, your filing status for the tax year automatically switches from “single” to “married”, even if you get hitched on December 31st. Deciding whether to file jointly or separately can have a big impact on whether you’ll get a refund or end up paying Uncle Sam at tax time. There are pros and cons to filing jointly or filing separately.
Typically, filing jointly is the preferable option for many married couples since it usually means a lower tax liability. It also tends to be easier to file jointly since you’re combining all of your tax information, such as income, credits and deductions, into one return. Married couples who file jointly can generally take advantage of more favorable tax brackets, which means you can earn more than you did while you were single but your tax rate won’t go up. Another key benefit is the fact that you can claim all available tax benefits when you file jointly. If you choose to file separately, you won’t be able to claim key tax breaks, such as the education credit or child tax credit.
If you decide to go with separate filings, you’ll both have to complete a return and report your tax information based on the laws in your state. Some states allow you to report just your individual information while others require you to split everything down the middle. The biggest drawback of filing separately is that for many couples, it means a higher tax liability than a joint return. There are, however, some situations where filing separately may make sense. For example, if you want to take advantage of certain deductions that you wouldn’t qualify for based on your combined income. Filing separately also protects you from any liability for a taxes owed your spouse owes as a result of inaccuracies or incorrect reporting. When you file jointly, you each automatically become liable for any taxes owed that may arise, regardless of who is actually responsible for it.
Maximize Your Deductions
Chances are, you didn’t qualify to itemize deductions when you were single but that can change once you’re married. Some of the deductions that you may be able to qualify for include deductions for your mortgage interest, student loan interest, medical expenses and charitable contributions. Claiming any or all of these deductions can reduce your total taxable income, which means less money you’ll have to fork over to the IRS. Just keep in mind that you’ll have to use 1040 to itemize and you’ll need to make sure you’re keeping accurate records for any expenses that you plan to deduct.
Starting a new life together can be exciting but it can also mean a big headache if you’re not prepared at tax time. Taking the time to go over your tax planning strategy can eliminate some potential roadblocks to your newly-wedded bliss.