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| Wedding Bells Can Ring In Tax Savings for Two |
05-11-2009 |
Ah, spring! The season of renewal, spontaneity, romance – and of course, tax planning.
If your thoughts of love are likely to lead to the altar this year, now is a good time for a crash course on the advantages and disadvantages of filing a joint tax return.
Newly married couples have two main choices when it comes to federal income taxes: you can file a joint tax return, in which you report your combined incomes and deductions, or you can file separate tax returns, just as you did before you wed.
As long as you tie the knot in 2009, you’ll have the option to file jointly for the entire tax year. When you file jointly, each partner accepts full and equal responsibility for any taxes and penalties that you as a couple may owe.
Which way should you file? It all depends on your financial and tax circumstances. A Traders Accounting tax professional can help you determine which method best suits your situation.
Joint Filing
Joint filing often works best for couples, especially when both partners work and one earns considerably more than the other, for these reasons:
• By combining your earnings, you can typically bring the higher earnings into a lower tax bracket.
• Some tax credits are only available to married couples who file jointly, and
• It’s easier to file one return than two.
Only by filing jointly can a couple take advantage of a long list of tax breaks that are unavailable to separate filers. These include all of the education tax breaks, most significantly the tuition and fees deduction and the Hope or Lifetime Learning tax credits.
That said, some dual-income couples could encounter the so-called marriage penalty and actually face slightly higher taxes by filing jointly. This tends to occur when a couple’s combined earnings push them into the higher tax brackets where they are taxed at slightly higher rates than if they had filed separately.
Tax law changes enacted in 2001 have eased this scenario somewhat, at least through 2010.
Separate Filing
Despite the advantages of joint filing, in some circumstances you may benefit by filing separately. Typically, these cases occur when one partner has large medical bills that can meet the deduction threshold considering their income alone. The same may apply to other itemized deduction thresholds, such as casualty losses or miscellaneous deductions, that may be best handled solo.
Not to introduce discord during this season of love, but separate filing also may make sense when one partner doesn’t want to be held liable for tax claims made by the other. In this case, the objecting spouse would not be held responsible if their spouse cheats on their taxes.
Separate filing also may be the best route for couples who are estranged or in the divorce process.
But as long as we’re on the topic, the IRS allows a special provision for estranged spouses if one or both have a dependent. They may file under the more advantageous head of household status as long as they have lived apart for at least the last six months of the tax year.
Surviving Spouse Status
Should your partner predecease you, your filing status may change again.
If you remain unmarried in the year that your partner died, you can file a joint return that takes into account your deceased spouse’s income, opening the door to a larger standard deduction and additional credit claims.
If you remarry within that same tax year, in addition to your joint or separate return with your new spouse, you’ll also need to file a return for your deceased spouse as well.
Whenever your marital status changes, your tax status could change as well. Be sure to contact Traders Accounting, your trading tax experts, to make sure your tax filing remains optimized for tax savings.
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- Well organized and very informative.
Ron Adams, Portland, OR
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