If wedding bells are in your future, your tax situation will be changing also. For starters, your tax filing status will change. You will have the choice of filing a joint return with your spouse or filing a separate return as a married person.
Filing a joint return usually gives you the bigger tax savings. Both spouses’ income and deductions for the entire year will be combined onto one return. Any deductions that are subject to limitations will be determined based on the combined income of both spouses.
In some cases, filing a separate return may save you taxes. A spouse who has high medical expenses or miscellaneous itemized deductions and low income, for example, might be better off filing a separate return. However, you may not claim certain credits and deductions if you file separate returns. Generally, only if you file a joint return can you claim the child and dependent care credit, the earned income credit, or education credits. Filing separate returns could affect the taxability of your social security benefits and the deductibility of rental losses.
The tax law has been changed to eliminate some of the additional tax that married couples once paid (called the “marriage penalty”). However, once you marry, you should review your federal income tax withholding at work. Fill out a new Form W-4 and indicate that you are married.
Several other limitations may come into play once you get married. For example, your IRA contribution may not be deductible if your spouse is covered by a retirement plan at work and your income exceeds certain limits.
Newlyweds can be faced with a surprise tax bill on April 15 unless they do advance planning. For details or planning guidance, give us a call.