Getting married impacts taxes in many ways, from the forms you need to fill out to new options for tax filing status that weren’t available as single filers. Plus, a number of potential tax benefits are now available, that may apply depending on your situation.
To optimize your tax return outcome and make the most of your new financial life together, you should always meet with a tax professional as part of your wedding planning to-do list. A Seattle CPA can find post-marriage tax credits and deductions you might otherwise miss.
Here are just a few of the marriage-related issues where accountants in Seattle can offer guidance and insight.
Choose the “right” tax filing status
Married couples have two tax filing options: Married Filing Jointly (MFJ) or Married Filing Separately (MFS). Most couples receive the most beneficial tax outcome filing jointly but depending on your personal circumstances, filing separately could be more tax efficient.
Potential benefits of MFJ include:
- Tax rate is often lower
- May be able to claim education tax credits or deduct student loan interest for your spouse
- Changes in how you claim deduction for dependents and child tax credits
- May qualify for the American opportunity tax credit, lifetime learning credit, saver’s tax credit, EIC or other tax benefit
Note: The IRS determines filing status on December 31 of each tax year. This means the year of your marriage you must file as MFJ or MFS, regardless of your wedding date.
Calculating the impact of changing tax brackets
When you file jointly as a married couple, your tax bracket is determined by the combination of both partners’ incomes. This new tax rate could be higher or lower than what you were paying as a single filer, depending on your spouse’s income.
In situations where your spouse is a much higher earner, your tax rate could go up. In the reverse scenario, your tax rate could go down.
In all cases, it’s a good idea to run the numbers for both MFJ and MFS to compare tax brackets for each filing status.
Buying or selling your primary home(s)
Marriage doubles the available gain exclusion on the sale of your primary home from $250,000 to $500,000 – but certain complications and restrictions exist if both parties owned a home prior to getting married or if the gain from the sale of one spouse’s home exceeds $250,000 and you have not both lived in the property as your primary home for at least two years.
Couples that own real estate prior to marriage should consult with a CPA to discuss the tax implications of keeping/selling one or more of the homes and the ideal timing for any sale.
Take advantage of unique IRA beneficiary options
A spouse is afforded special distribution deferral options when inheriting an IRA. For Traditional IRAs, a required minimal distribution (RMD) can be put off longer than when a non-spouse inherits the same plan. For a Roth IRA, an RMD can be avoided for life.
Double charitable contribution deduction
Married couples can double their above-the-line deduction for cash donations to charity when filing jointly.
Estate planning and gift tax exclusion
Spouses can receive unlimited gifts of cash or property without owing gift taxes. A CPA can help you best take advantage of this provision to optimize your estate planning strategy.
Making changes to your W-4 and Social Security
The tax filing status you intend to use will likely impact how you wish to adjust (or not adjust) tax withholdings from your employer.
Minimize tax liability for you and your spouse
Our team believes a tax return should be the result of strategic planning, and never a surprise. Understanding your goals as a couple is critical to determining the “right” strategy, from tax filing status to W-4 withholdings and more.
Start your journey to post-marriage tax-efficiency by requesting a free consultation with our team here: online contact form.