Marriage means a new phase in your life. It comes with interesting changes in your mundane life. You get a new surname (in case of women), probably a new apartment, incur additional expenses, etc. This is not the end. There's yet another change that newly married couples often face after the honeymoon period is over and that is taxes.
How newly married couples can avoid tax stress
Wedding means sharing your life with another person. The best way to start the new chapter of your life is by frankly talking about money matters with your spouse. However, in most of the cases, it has been seen that couples avoid discussing about financial matters deliberately. This results to ugly fights and quarrels later on.
There's already too much stress in your life post wedding. You've to make so many adjustments in your life - from food habits, financial habits to sleeping habits. On top of that, you've to pay several bills post your wedding. So, it is quite obvious that you'd not like to have an extra stress in the form of tax.
Here are the 7 tax tips that newly married couples can follow to de-stress.
1. File a new form W-4 soon: Once you exchange the wedding rings, talk with your employer and sign a new form W-4. Either you may require to have more tax withheld or you may need to have less tax withheld after your wedding, but it is less likely to remain same.
Do keep in mind that it is never a wise idea to keep guessing about the day when you'll file out the form W-4. Several factors may have a drastic impact on your tax liability.
Remember, if you've less tax withheld, you may get a shock after filing your income tax returns in the coming year. On the other hand, if you've more tax withheld, then at the time of emergency, there will be shortage of funds. Both the situations are not good for you.
Make sure you use form W-4 to know the right amount of tax deducted from your wage. If required, you can handover the printout of the form to your payroll department.
2. Inform the IRS about your new address: Make sure you inform the IRS, Social Security Administration, and your boss about your new contact details. This will help you receive the necessary emails and tax refunds. You can notify the IRS about the change in your address by submitting the form 8822.
3. Notify the IRS that you've changed name: Have you changed your name after making the wedding vows? If yes, then you must inform the IRS about it also. Remember, you can get into severe tax problems if your Social Security Number and name are not similar in all the documents.
4. Itemize your deductions to save money: Past is past. Gone are the days when you could afford to live irresponsibly. You're married now and so you've to take care of your spouse's financial matters too. Start itemizing your deductions. This will help you lower your tax bill to a great extent. The standard deductions don't make sense always.
5. Watch out for the home sale exclusion: If you or your spouse has sold a house so as to combine households, then it would be best to opt for home sale exclusion. In case you're eligible for that, then you may be able to exclude around $250,000 of capital gains from tax which is about $500,000 (applicable for the couples).
6. Ride on a different retirement vehicle: This is not mandatory. You should change your retirement savings account if your joint income increases substantially. For instance, it might be the case that you had opted for Roth IRA earlier. However, after marriage, you may not be able to qualify for that eligibility if your joint income has hiked considerably.
7. Check out the marriage penalty: There is no provision in the form on marriage penalty. There's nothing like that. Marriage penalty actually means you're paying much more as married couple than what you paid before getting hitched.
It is a fact that certain tax deductions and other benefits are not available at higher income levels. If the income levels of married couples are twice less than that of the single people, then you can say, there's penalty for getting married.
It isn't the case that filing separately helps you skip marriage penalty. Truth be told, several tax deductions are simply eradicated when you file your income tax returns separately. On the contrary, filing joint returns will be better if any one of you earns more than the other. You taxable amount (in case joint return) can be less than the overall amount you were paying as single individuals.
One major decision you've to make is regarding the tax filing status. You can either file tax returns jointly or separately. Find out which one would be beneficial for both of you. Usually, it is better to file tax returns jointly since this would help you save time. You just have one return to prepare. You won't need time to think about who will get deduction. In case, you have no intention to take your spouse's tax responsibility, then it is better to have a separate financial life. You may file your tax returns separately in such a situation.
There is yet another thing about which you need to make a decision. Before marriage, you may have been used to filing your income tax returns yourself. However, your tax situation may not be the same after marriage. Rather, it may get complicated even more. In this situation, it would be better to get help and advice from a tax expert.
It is true that you'd have to shell out a few extra dollars for consulting a professional. However, if your spouse doesn't follow the right techniques, then it makes sense to consult a professional and save penalties and extra dollars in the long run.