Ten Tax Thoughts for those Getting Married

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It’s wedding season and the last thing on the minds of couples is filing status and how it affects taxes. Here are ten tax thoughts for those getting married in 2018.

Most Popular Filing Status

Filing status has always been determined by the end of each year. The status of “Married filing jointly” is usually the most beneficial tax outcome due to deductions and credits which are not available to married couples filing separate returns.

Tax Brackets

Brackets will determine the highest rate of tax imposed on your income. Brackets are different for each filing status, so it’s nowhere close to being identical to when you were filing single. Once you are married and file a joint return, all income is combined, which in turn may bump you into a higher tax bracket.

Additional exemptions and increased standard deduction

Married couples filing a joint return get to claim two personal exemptions on the tax return instead of one. Additionally, the standard deduction allowed on the tax return is highest for married couples filing a joint return. 2018 single taxpayers filing in 2019 are allowed a standard deduction of $12,000, while married couples filing a joint return are allowed a deduction of $24,000.

Changing your W-4

The additional exemption and higher standard deductions should be reflected on your W-4. Thus, it may be wise to change your W-4. Claiming an additional allowance or changing withholding to the married rate on your W-4 means fewer taxes are withheld from your pay. Who doesn’t like more money upfront from their paycheck?

Buying or Selling Your First Home

Once you get married, your combined incomes may allow you to purchase your first home or each party may choose to sell individual homes owned before the marriage. When you own a home, the interest you pay on your mortgage is deductible on your tax return as an itemized deduction. The new tax act only allows one to deduct the mortgage interest on the first $750,000 of the loan. It is to best to create a strategy with a tax professional before making this move.

Itemizing vs Claiming the Standard Deduction

When you file your return each year, you must determine if it is more beneficial for you to itemize as opposed to claiming the standard deduction. Once you are married and own a home, many people find that it is better to itemize. Typically, because deductions such as mortgage interest result in a higher deduction than the standard deduction. However, the new standard deduction may work better in your favor. Make sure to play both scenarios when you are consulting with a tax professional.

Gift Taxes and Estate Planning

Spouses can give unlimited gifts of cash or other property to one another free of gift taxes. This provision has important implications for estate planning purposes, so make sure to revisit your estate plan.

Name Changes with Social Security

Because your return is filed under your SSN, it is important to ensure that the SSA (Social Security Administration) has been notified of any name changes that take place. The SSA must process the change in the system and relay that info to the IRS before filing your return. You should wait to file your return until the name change processes have been completed to avoid any complications which could arise if the names on the returns do not match the SSNs.

Marriage Penalty

This exists when two individuals filing a joint return pay more tax than the sum of their individual tax liabilities calculated as individuals. One reason this occurs is the MFJ (married filing jointly) income tax brackets and standard deductions are not always equal to twice the single income tax brackets and standard deductions.

Affordable Care Act Premium Tax Credit

If either or both of you receive advance payments of the premium tax credit for health insurance purchased through the federal or state marketplace, you should report the marriage or any kind of life occurrence (move, income, family size) to the marketplace. This will allow the marketplace to adjust your advance credit payments if necessary.

There are my ten tax thoughts and don’t hesitate to call, email, or message your local Bristol TN/VA bookkeeper for your tax and business needs!

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