Wedding season is upon us! Instead of getting you a fondue set or a Belgian waffle maker, I figured I’d give you something a little more (hopefully) useful: a few tips to make sure you’re on track for a smooth transition when tax time rolls around (AKA exactly what you were hoping for).
1. Update your name and address
If you are legally changing your name, you must report it to the Social Security Administration. The name used in filing your tax return has to match what the SSA and IRS have on file. All you have to do is fill out Form SS-5 and mail it to the SSA. To change your address, fill out and mail Form 8822 to the IRS. This only takes a couple of minutes and is worth doing to avoid a headache down the road.
2. Change your filing status
You are considered married for the entire year, no matter what date you actually tie the knot, even if it’s on December 31. This means you could file as “Married Filing Jointly” for the entire year, which almost always benefits taxpayers more than filing separately (see #4). This goes for same-sex couples as well if you were legally married in a state that recognizes same-sex marriages.
3. Change your withholding
Now that your filing status will change from “single” to “married”, you should update your withholding criteria (filing status, exemptions, address, etc.) by filling out a new Form W-4 and giving it to your employer. Most likely, this will result in a higher net check since tax rates are more favorable for married couples.
4. Make sure to capitalize on all tax advantages available to you
Tax advantages offered to married couples who file jointly include:
- Different tax brackets that usually translate to a lower tax bill or higher refund
- Higher income limits and phase-out thresholds for certain deductions, credits, etc.
- Only one return needs to be filed instead of two (more time and cost efficient)
- Higher standard deduction and personal exemption
- An unemployed spouse can contribute to an IRA (an unemployed single taxpayer cannot)
- Exclusion on the capital gain generated from the sale of your home is doubled (from $250,000 to $500,000)
- Limit on annual tax-free gifts is also doubled (from $14,000 per year to $28,000 per year)
- You and your spouse can reassess your benefits packages to see which would work best for you
5. Beware of the disadvantages, too
Take into account the following possible downsides, as well:
- Filing jointly doesn’t always result in the best possible outcome – make sure you and your spouse discuss your options together and with your tax preparer about the possibility of filing separately and if it could benefit you more than if you filed jointly
- If you file jointly, you are each jointly and severally liable and responsible for every item reported on the return – for example, if your spouse reports fraudulent activity on your joint return, you both are liable and the IRS can come after both of you or either one of you separately (not including tax returns prior to the year you got married)
- If you’ve previously claimed the Earned Income Credit or any other tax credit, you may lose them due to the higher income reported on your joint return
Keep in mind, these are just a few of the tax advantages and disadvantages presented to newlyweds. Each scenario is unique and there are pros and cons for every situation. Just keep it in the back of your mind that there is a small to-do list before the year ends, but for now, your only to-do list is:
- Enjoy your wedding…like, actually enjoy it. Take a step back every once in a while with your spouse to observe and appreciate what’s going on – I’ve heard this helps avoid feeling like it was over in the blink of an eye. It’s one of the most special days of your life and should be treated as such!
- Enjoy your honeymoon. Unplug! Whether you’re relaxing on a beach, sightseeing, adventure seeking, or whatever…have a blast.
- Enjoy the leftover cake. Everyone loves leftover cake 🎂
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Nick Aiola is a CPA and the owner of Aiola CPA, PLLC. Nick and his team provide the highest quality of tax and advisory services to real estate investors and individuals and business owners in the real estate industry.
Phone – (646) 397-9537
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