Among the many things that change for newlyweds is their tax return. You are no longer a bachelor (or the head of household).Because of the IRS’s authority, you are now married filing jointly—or maybe married filing separately.
Your tax bill or refund may rise or reduce depending on how you file once married. Follow these procedures to minimize your tax obligation as a married couple.
Determine if You Can File as a Married Couple
You must be married before the end of the tax year for which you and your spouse are filing jointly: The marital status of a taxpayer on December 31 affects whether they are deemed married for the whole year. For example, if you married on January 1, 2022, you will not be allowed to declare yourself married on your 2021 tax return, even though you would have been married for more than three months by the time your 2021 tax return is due. Legally married same-sex couples are subject to the same regulations as any other legally married pair.
- Whether you file married filing separately or jointly may save you hundreds of dollars on your tax return.
- To file as a married couple, you must be married on the final day of the tax year.
- If you file as married filing jointly, you may deduct student loan interest, tuition and fees, education credits, and earned income credits.
- If you owe past taxes, filing jointly will not punish your spouse as long as they file the Injured Spouse Allocation form.
- Fill out practice papers for both married filing separately and married filing jointly before selecting how to file. Based on your data, certain tax software will automatically calculate which technique will result in the lowest tax burden.
Review Restrictions on Married Filing Separately
Married filing jointly is the most typical form for couples to file for a variety of reasons, including access to deductions and credits. However, this is not true for every marriage.
Filing individually is sometimes preferable. Living in a community property state, tax liens on one spouse, or limitations on claiming deductions may make deciding how to file simpler or more difficult. Here’s what you need to think about with each of these issues:
Prohibited Deductions and Credits
You cannot claim student loan interest deductions, tuition and fees deductions, education credits, or earned income credits if you are married and filing separately. By filing separately, you might lower your tax refund or increase your tax payment by over a thousand dollars.
The married filing separately tax option also restricts your ability to take itemized or basic deductions. For example, if one of you has enough deductions, such as property taxes or medical expenditures, to itemize your tax return, the other spouse must itemize as well, even though that person would lose out on the hefty standard deduction under the Tax Cuts and Jobs Act.
In this sort of circumstance, the source of funding is critical. According to the Internal Revenue Service, “If you and your spouse reside in a noncommunity property state and file separate returns, you may only include the medical expenditures that you actually paid. Unless you can establish otherwise, any medical expenditures paid out of a joint checking account in which you and your spouse have equal interest are presumed to have been paid equally by both of you.”
However, if the deductions are substantial enough—especially if the less well-paid spouse has, say, $40,000 in medical expenditures for the year—the option of filing separately may be worthwhile.
Living in a Community Property State
If you reside in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you must follow a difficult series of criteria to determine what is deemed communal or marital income and what is considered your income.
The regulations may differ from one state to the next. Your combined income may be shared evenly across the tax returns, negating the need to file separately. If you reside in a community property state and wish to file separately, consider utilizing reliable tax software or hiring an accountant.
Discuss All Possible Tax Liens
Many married couples file separately because they have past-due previous debt that may be subtracted from their tax return. This includes outstanding child support, past-due school loan repayments, or an unpaid tax debt accrued by one spouse prior to the marriage.
The good news is that filing separately due to earlier tax liens may not be required. The couple may submit IRS Form 8379, Injured Spouse Allocation, with their married-filing-jointly tax return each year until the spouse with liens pays off their obligation.
This prevents the spouse who does not owe the amount from being punished and losing their portion of any tax refund. Furthermore, by filing jointly, the couple may claim deductions and credits that are not accessible to individuals filing separately.
Consider the Income Factor
When one couple earns more than the other, the marginal tax rates for both may be the nicest wedding gift they’ve ever gotten.
Assume Julie and Jane get married on December 27, 2020. Julie is a marketing manager with a taxable income of $55,000 in 2020. Jane earned her MBA on December 15, 2020, and her fellowship income will be $8,000.
Julie would have had to pay 22% of her taxable income beyond $40,125 in taxes if she hadn’t married Jane or if she had filed her taxes as married filing separately ($40,525 in 2021). For 2020, their marginal tax rate will be 12% if they file jointly (and 2021).Furthermore, they will be able to collect deductions and credits that would otherwise be disallowed for married couples filing separately.
Legally married same-sex couples are subject to the same regulations as any other legally married pair.
Prepare Two Tax Returns (or Ask an Accountant)
If it’s not clear which choice to choose, prepare your taxes for both filing options: married filing jointly and married filing separately. Using tax software may take an additional couple of hours, but the potential savings are worth it. Based on your data, certain tax software will automatically calculate which technique will result in the lowest tax burden.
You might also consult with an accountant to determine which option is best for your specific situation. Keep in mind that both spouses must collect receipts and papers to substantiate their deductions and credits. For example, you’ll need proof that you may deduct student loan interest.
The Bottom Line
If you file married filing separately, the tax procedure will be more difficult, particularly if you reside in a community property state. You will also most likely miss out on important tax breaks and credits. Filing separately, on the other hand, may make sense if one spouse has considerable deductible costs or liens against them.
When the solution isn’t clear, take the time to test both choices by filling out mock forms, then choose the method that works best. And, because money is a source of contention between couples, the tax benefits of filing jointly are the finest wedding gift the IRS could offer you.
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