Tax planning means knowing what you can actively do to save on your taxes now and in the future. When your status goes from single to married, you become eligible for new benefits and in some cases, larger tax breaks. Here’s a look at some of the ways your married status impacts your tax situation and things you can do plan for it.
Choosing a Filing Status
When you get married, you must change your filing status. In most cases, filing jointly is the right choice for a newlywed couple, and you could benefit from some significant tax breaks, like a larger standard deduction. Still, there are several situations where filing separately could be better suited to you. For example, if you or your spouse has major medical expenses, or if you just decide not to combine your liabilities (debt, alimony, etc.), you may want to file separate returns. Which filing status is right for you?
Combining Your Income
If you and your spouse are both earning money, you may find yourselves in a higher tax bracket when you combine your incomes for tax purposes. What this means is you’ll pay a higher percent of your earnings for federal income tax than you did when you were still single. This is known as the “marriage penalty” tax. It’s also worth noting that if one of you significantly out-earns the other, then combining your salaries can put you into a lower bracket and reduce your overall taxes.
Fortunately, Congress has taken steps to ensure that couples are not paying significantly more just for combining their taxable incomes. And when you file your taxes with TaxSlayer, the deduction finder goes to work to find all possible credits and deductions to keep your tax bill as low as possible, so you get the biggest refund you deserve.
Adjusting Your Withholdings
If both of you are employed, you can choose to combine all of your allowances on a single W-4, or you can divide them up. The thing is, you can’t claim the same allowances twice – so make sure you know who is accounting for what. If your spouse claims all the allowances on their form, for example, then you should only claim yourself.
If one of you is self-employed and does not have taxes withheld, the other spouse can account for that income on their W-4. This can ensure you are paying your liabilities all year long, so you aren’t hit with a surprise tax bill when you file a return.
Buying and Selling Property
Not everyone buys a home when they get married, but for some couples, investing in a property together is a goal. As a bonus, homeownership can qualify you for some significant tax breaks. For example, the law allows you to deduct the mortgage interest on up to $750,000 of qualified debt if you are filing jointly. This is called, very simply, the Mortgage Interest Deduction.
If you decide to sell a home and you sell it for more than you paid for it, the law says that as a couple, you can exclude up to $500,000 of capital gains – as long as you meet certain rules. If you file separately, the amount you can exclude is $250,000. This is called the Capital Gains Exclusion.
Claiming Social Security
If one of you is changing your name, you may already know that you need to notify the Social Security Administration. This is because the IRS uses Social Security numbers to track and reconcile tax records. But there’s more. Married couples have some options when it comes to claiming Social Security that single individuals do not. Coordinating your benefits with your spouse’s benefits can help you both get the most out of Social Security.
For example, when you begin drawing Social Security, you could claim benefits based on your own earnings or you could claim 50% of your spouse’s benefit. This is a major advantage if one of you doesn’t work or earns significantly less income than the other. Another advantage – known as the survivor benefit – says that when one of you passes away, the surviving spouse will continue to receive the higher of the two benefit amounts.
Saving for Retirement
Social Security benefits will only replace a percentage of your pre-retirement income when you stop working, so it is smart to make contributions into an additional retirement savings plan. When you are single, it can be difficult to set aside money for retirement. Combining your income with your spouse’s may give you a boost that allows you to plan for the future. What’s more, most retirement savings plans come with added tax savings benefits.
If you or your spouse doesn’t earn income, being married means you can open a spousal IRA. This plan allows you to save money in a tax-deferred investment account, even if one of you does not have a job. This is a benefit that is not available to single individuals.
Building a Side Business
If you work for yourself, you should be taking advantage of the many self-employment tax deductions out there. If your business is growing, it might be time to recruit more help – to include your spouse. If you’ve thought about partnering up in business as well as in life, there are some important things to know. Learn what hiring family members can mean for your taxes here.
Saving time on tax filing
This one is pretty straightforward. Filing one joint return is faster than completing two separate returns. When you file with TaxSlayer, the process is already fast – not to mention affordable. You can save money, save time, and get your maximum refund as a newlywed couple. It’s totally guaranteed.