Newlyweds Should Discuss Money and Taxes
By Tiffany Washington
Newlyweds have a tremendous amount of responsibility and activity in their lives, and they are also still learning about each other and life together. Two important topics to discuss are money and taxes. If either of you have made mistakes with money or taxes talk about it honestly and discuss how you'd like to improve in the future. Have a dialogue that covers money issues and taxes, and make sure there is a frank give and take so the basis of a good relationship exists about these important matters.
Key Tax Information for Newlyweds
Make sure the IRS knows your new name, if you've changed your name. You have to let the government know at least three weeks before April 15. The IRS checks your information against your file at the Social Security Administration, and if it doesn't match, your return gets kicked back.
Go to ssa.gov and download form SS-5. Fill it out and take it with your marriage certificate and your driver's license or passport to the SSA office. The change will be verified within 48 hours and your new card will arrive in about two weeks.
Check your withholding. If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on www.irs.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will give you the information you need to complete a new Form W-4, Employee's Withholding Allowance Certificate. You can fill it out and print it online and then give the form to your employer(s) so they withhold the correct amount from your pay. Select the right tax form. Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
Unless you both make significant money, file jointly. Most couples are better off filing together, particularly if there's a wide gap in your incomes. When your salaries are averaged, the lesser of the two could sink the higher one into a lower tax bracket, saving you both money. You may have heard about the Marriage Penalty, a fine leveled at some wedded couples, but it only applies to couples who are earning two relatively high salaries (a combined income of more than $131,450), which might bump you into the 28 percent tax bracket.
When you have that much money coming in, submitting separately might be the way to go, because averaging your incomes won't help. The other common reason to file separate returns is when writing off medical expenses. To be deductible, they must add up to more than 7.5 percent of your adjusted gross income, an amount that's easier to achieve if you file solo.
If you do file individually, divide deductions wisely. State law decides which of you takes shared deductions like mortgage interest, so know your facts going in. As a rule, give the biggest deductions to whichever of you brings home the largest amount of income. Because that partner faces higher tax rates on their earned income, they're likely to benefit more from the break. One caveat: Most deductions decline once your income hits $100,000. If you clear that mark, let your spouse take the write-off. If you have an accountant, ask him/her to work up every possible scenario to see which is best for you. (If you don't, use online tax software to see for yourself.)
Help Your Spouse Through Any 'Hot Water' Issues
When you file together, you're both signing off on the information you report. If your spouse has kept less than stellar records--especially if he/she owns a business or is self-employed or thinking about making some risky omissions, don't get tangled up in it. The IRS views joint filers as a single entity, so if your return gets red flagged you could both lose your refund or end up owing back taxes. If that's the case, play it safe and file your own return. Then vow to help your spouse get the numbers in order for next year.
Consult a Tax Professional
Asking the experts can save you a lot of time and money. Your tax consultant can help you with your deductions, filling status and whether filling married jointly or separately will be best for you. Every situation is unique and needs to be looked at individually.
Tiffany Washington, owner of Washington Accounting Services, is a tax and finance expert based in Waldorf, Maryland. She has been quoted in the Wall Street Journal and other respected publications.