Have you ever heard the saying, “Til taxes do us part” or “Marriage is what brings us together today, and taxes are what drive us apart”? Well, we’re here to put those sayings to bed once and for all. Business Insider reached out to Dawn and asked her for her best newlywed tax advice. Here are her answers… *spoiler alert* you can still stay together.
1. What do newlyweds typically get wrong when filing their taxes?
The most common mistake newlyweds face when filing taxes is that they let their taxes be an afterthought. Getting married has the potential to drastically change your tax situation so the sooner they consult with a knowledgeable tax accountant, the better. There will be less surprises and more tax planning opportunities available to newlyweds who plan ahead. Another common tax mistake is that newlyweds will often use the same accountant they had prior to marriage without considering if this accountant is really the best fit for both partners. Couples should take time to shop around and find an accountant who they both feel comfortable reaching out to and an accountant who can speak to both partner’s tax situations (this is especially important if one or both spouses have investments and need a tax strategist, not just a tax preparer).
2. Do newlyweds have to file together? And what benefits/disadvantages are there?
Newlyweds have the option of filing separately or filing jointly. For most taxpayers, filing jointly will be the most beneficial route since couples may miss out on certain tax credits and be subject to lower limits when filing separately. If one or both spouses suspects their partner may be committing tax fraud or one or both spouses expects to owe a substantial amount in taxes, it is recommended these taxpayers forgo tax savings and file separately in order to avoid improper tax liability.
It’s important to remember that tax savings is only one component when determining the best course of action. Some couples do not feel comfortable sharing finances together and other couples may have outside factors for wanting to file separately. For example, if one spouse is on an income-driven repayment loan plan, that couple may want to file separately so that the loan payments don’t increase with the additional income of their spouse.
3. How should a couple determine if they should file separately?
Every situation is unique and every couple will have their own preferences. This is where having a great accountant is worth the investment because a great accountant will offer to prepare two sets of returns: one married filing joint return and another married filing separate return. The couple can then consult with their accountant and weigh the tax savings against other factors.
4. What is the marriage penalty, and what should people know about it?
A marriage tax penalty occurs when a couple pays more in taxes than they would pay as unmarried taxpayers. This occurs because married couple and single taxpayers have different tax brackets and the tax brackets for married couples aren’t always double the tax brackets for single taxpayers. This issue used to be more prevalent but in 2017, the Tax Cuts and Jobs Act updated the federal tax brackets so that single taxpayers and married taxpayers end up paying similar amounts of taxes. However, if a couple makes over $647,850 in 2022, they may still be affected by the marriage penalty.
It’s important to note that there is also something called the marriage tax bonus. The marriage bonus typically occurs in households where one person earns most of, if not all, the household’s income. By filing jointly, the couple qualifies for a lower tax bracket than they would have if they filed as single taxpayers.
5. Any other advice or tips for newlywed couples as they head into the tax season?
Learn to talk openly about money. It’s not always an easy subject to broach but it’s important that spouses are on the same page with their financial goals even if they have different methods for obtaining said goals.
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