Getting married is one of the most important events in your life that you want to cherish and celebrate forever, a memory that will last you a lifetime. But the additional expenses that come from building a new family, those debts can last to a lifetime as well and will not be as memorable. Marriage however comes with its own separate caveats. Although the IRS recommends that couples file their taxes jointly by providing multiple tax breaks, under certain circumstances, it can actually be more beneficial to file taxes independently and save (but rarely).
Your marriage status depends on the your status as of the last day of the year
(December 31) and this explains why so many marriages occur in January or earlier in the year as it gives people room to make financial decisions in the intervening time period.
Advantages of filing jointly (MFJ)
IRS gives one of the largest family deductions and available tax refunds for couples filing jointly. There are multiple tax credits that jointly filed parties can benefit from and examples include Earned Income Tax Credit (EITC), American Opportunity and Lifetime Learning Education Tax Credits, Exclusion or credit for adoption expenses, Child and Dependent Care Tax Credit. They also receive higher income thresholds. If one spouse is a nonresident alien orif the married pair is a same-sex couple, you can also choose to file a joint return. If a joint return is filed, the nonresident spouse will be treated as U.S. tax payer. If you married 3 years ago and did not file jointly, then you have a grace period to provide amended filing to the IRS so as to receive tax refunds and deduction for those 3 years, after which this amended filing expires. Filing status is considered as of Dec 31, and these taxes are due on April 15.
Separate Filers (MFS)
Separate filers may be subject to higher tax rates and more potential taxable income, deductions can be half as much as filing jointly, automatic disqualification from numerous tax deductions, cannot take out deductions from student loans, have a smaller IRA contribution deduction for them, and reduced capital loss deductions. Separate filers only truly benefit for medical deductions if one’s spouse has huge out-of-pocket medical expenses, has a high AGI (adjusted gross income), and jointly filing only allows single-digit deductions on these medical expenses. Always compare whether filing jointly is cheaper than separately before making a decision.
- Filing separately cannot allow you to take advantage of both individual and joint filing exemptions on separate income tax bills and the itemized exemptions on separate filling is lower than joint filling
- Marriage might push your joint income over the usual tax brackets as opposed to when you filed separately and hence may expose you to more income taxes. To alleviate this, the government started the marriage bonus program that acts as a deduction
- Determining allowances is important. For example if you are covered by your spouse’s medical plan, then you can trade in your medical plan for other fringe benefits (and a form W-4 will be used to declare this)
- Reporting name changes - after getting married if you must change your name, you have to declare this to the SSN and receive a revised social security card reflecting the name change. This information is directly communicated to the IRS and so your taxing conditions for MFJ will be optionally available automatically (use the SSN-SS-5 Application to apply for a new SSN)
- Reporting changes in address - these changes must also be reported before the filing deadline to keep your records up to date(use Form-8822 to report any changes in address). If you forget to either report the name or address change than you can still file individually under your old name but do file the SSN changes as soon before the filing deadline.
- In addition you must update your information at the U.S. Postal Service and your Health Insurance Marketplace.
- The maximum amount of tax-free profit from sale of homes doubles from $250,000 to $500,000 as a direct result of your marriage. This requires that you not own the house and live in it for a period of at least two to five years preceding the day of the sale. If your spouse sells the house before or after the wee=dding either way your $250,000 limit is secure.
- All changes in family lifestyles (changes in circumstances such as income, birth of child, new job, home purchase, etc.) must be reported effectively to the Health Insurance Marketplace so as to update your premium tax credit
Having children is an important consideration and hence merits its own separate section. If you are planning on having kids, then you can file for Adoption Taxpayer Identification Number (ATIN) and receive additional child-based deductions and claim them on your tax returns. You can start by completing the Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions either online or mailing it in via postal services to the IRS. Qualification for the Adoption Tax Credit will allow parents to save taxes on expenses involved in adopting and taking care of a qualified child under 18 years old.
If you are divorced or legally separated from your spouse, you can no longer file for MFJ and are compelled to perform separate filing no matter when you divorce, and you are considered single for the entire tax year. This is different in the event of the death of a spouse in which case you are considered to be legally married for the entire tax year if the tragedy strikes in the middle of the year.
Always jointly file taxes if you have the opportunity unless you plan to divorce your partner, in which case MFS is the way to go. But given the number of considerations given, it is always recommended that you inquire with a professional tax consultant before making any decisions.