The wedding is over, and the dress is packed away. You’re probably at work day-dreaming about how fabulous your honeymoon was. You've got a to-do list of name changes, financial planning, and other new marriage chores. These newlywed tasks aren’t exactly the most exciting part of your new life with your spouse. But thinking proactively about these big changes will make things easier in the long run. This is especially true when it comes to financial planning, and preparing for your first year of filing taxes as newlyweds!
One big thing newlyweds often overlook is coming up with a plan to file their taxes. Especially given the squeeze many couples feel after the expenses of planning a wedding ceremony, newlyweds will want to make sure that their refund for the year is as generous as possible. There’s no sense in leaving money on the table as you and your partner begin your new lives together. Here are a number of ways you can ensure your taxes are in order before, during and after your wedding!
Filing jointly vs. separately
The biggest question you and your spouse will need to answer is whether filing jointly or separately is more beneficial. Filling jointly allows you to take advantage of joint standard deductions: $12,600 compared to the individual standard of $6,300. Increasing your earned income tax credit, as well as child dependent care credit, are contingent on filling jointly. Additionally, if you get your healthcare through the Affordable Care Act, your newlywed status may affect your tax credit.
But on the other hand, there can be some drawbacks to filing jointly. If your combined income pushes you and your spouse into a higher tax bracket, it may be worth filling separately to lower your tax obligation. Additionally, if you or your partner have student loans on an Income-Based Repayment plan, you may lose this status if you file jointly, which can considerably increase monthly payments.
You may also wish to file separately if your partner owes a large amount of back taxes or debt, for obvious reasons. But if significant debt for one partner is a concern and you still wish to file jointly, be sure to file a form 8379. This can fix some of the potential issues by calculating how much of your joint return you both should receive, and how much should go to paying off debt. This is a good way to have the IRS make a decision that could involve an awkward conversation.
Without making too many assumptions: for couples with approximately the same income going into the wedding, it’s usually better to wait till you have children to consider filing jointly. However, everyone’s tax situation is unique, and we recommend newlyweds calculate and compare their returns both as an individual and as a couple to be on the safe side. You can easily go into any tax software program and test both joint and separate filings to see which option comes out with a bigger refund.
Talking to your employers
With your filing status sorted out, it’s worth examining your employer’s retirement plans to see if they’re favorable to married couples. For example, IRAs allow the spouse with earned income to make contributions for a non-working spouse (as long as you’re filling jointly). A non-working spouse can make a deductible contribution of up to $5,500, a fantastic benefit as far as retirement is concerned. It’s also worth re-checking your withholding status. Consider refiling your W-4 with your spouse to see how many allowances and withholdings are appropriate, and if you both work, how many you should each take on.
If your home is sold as a result of combining two households, you may be able to exclude some, or even all, of this gain on your taxes. If the seller owned the property for at least two of the past five years and used it as their primary residence, usually this gain can be excluded from taxable income, up to $250,000. This exclusion can go up to $500,000 for joint fillers if both meet the above “two-of-five” requirement, and neither excluded the gain from the sale of another residence in the past two years.
With all that complexity out of the way, here’s a simple fact before we conclude: no matter when in a tax year you are married, you may file jointly for that year. If the wedding is on December 31, the government will still consider you a couple for the entirety of the year if you chose to file as such.
Whatever decisions you chose to make after you’re married, make sure they’re double-checked carefully to ensure accuracy and the best possible net return. Nothing can ruin a honeymoon quite like refiling or dealing with an audit.
Changing your surname
And finally, an easy question: how does the IRS handle a change in last name? Well, it doesn’t matter if you’ve taken your partner’s name or vice versa. Maybe you’ve decided to not change your last name at all! As long as the name on your return matches up with what the Social Security Office has on file, you're good to go.
To make sure they have your new name, and that your new name is on your social security card, just file a form SS-5 onSSA.gov or visit a local office. While you’re at it, if you’re moving to a new home, it’s worth changing your address with USPS, the IRS and your employer to make sure you don’t miss any important documents that come your way.
Dealing with taxes is no one’s favorite thing to do after the excitement of a wedding. But the devil’s in the details. With these sorted out, you and your partner can be well on your way to a happy and financially secure life together.