Getting married is a monumental, life-changing event. Along with planning a wedding and making vows, you are combining two households. You may have heard of a “marriage penalty” and other issues involving your income taxes. Before you file your tax return, make sure you understand the pros and cons of each filing status.
How Does Marriage Affect Taxes?
Married couples must either file as:
- Married and filing jointly, or
- Married and filing separately.
For tax purposes, marital status is determined on December 31. This means that even if you were single for most of the year, you must file your taxes as married.
A marriage penalty occurs when a married tax return results in a higher tax rate than if the couple were single. However, 2001 tax law changes reduced the likelihood of marriage penalties by doubling the standard deduction and income thresholds for the lowest tax brackets. (Today, marriage penalties typically occur when both spouses have high incomes.)
What is a Joint Tax Return?
A joint tax return is allows a married couple to share tax deductions and credits. Instead of filing two separate returns, a joint return may save you time and money.
Married couples can also choose to file separately. However, filing separately does not mean the IRS will treat you like a single person. If you are married and file separately, your deductions must be consistent. In other words, if one spouse itemizes his or her deductions, the other spouse cannot use the standard deduction.
What are the Pros and Cons of Filing Jointly?
Some Tax Credits Require a Joint Filing.
Some tax credits are unavailable if you file separately. These include the:
- Earned Income Tax Credit,
- American Opportunity Tax Credit,
- Lifetime Learning Tax Credit,
- Education Tax Credits,
- Child and Dependent Care Tax Credit, and
- The exclusion/credit for adoption expenses.
Joint Filing May Allow for Larger Deductions.
The 2015 standard deduction for an individual is $6,300. For joint filers, the standard deduction was $12,600. Filing separately also results in smaller IRA contribution and capital loss deductions. Finally, you cannot deduct student loan interest, tuition, or academic fees if you file separately.
Joint Filing May Change Your Tax Bracket.
Income tax rates vary depending on your tax bracket. When you are married, your income is combined—which may result in higher tax rates. However, if one spouse does not work (or earns modest wages), he or she may actually pull the couple into a lower tax bracket. (However, a spouse can never be claimed as a dependent.)
A software engineer earns $100,000 in taxable income in 2016. Her husband is a freelance graphic designer and earns $40,000 that year. If the engineer was single or files separately , she would be in the 28% tax bracket. If she files married joint, they will be placed in the 25% tax bracket.
A pulmonologist earns $235,000 in taxable income. Her husband is a dermatologist and earns $245,000 in 2016. If they were single, they would each be in the 33% tax bracket. As a married couple, they are in the 38% tax bracket.
Filing Jointly May Allow an Unemployed Spouse to Contribute to an IRA.
An individual retirement account (IRA) is a savings account that helps you save for retirement. Tax laws allow a non-working spouse to contribute to an IRA if the couple files a joint return. Besides saving for your retirement, some IRA contributions are tax deductible.
If Your Spouse Has High Medical Bills, Filing Separately May Be Best.
Medical expenses may be deducted if they exceed 10% of your adjusted gross income. If you and your spouse are both high earners, it may be difficult to reach this 10% threshold together. However, you file separately, medical bills may exceed the 10% requirement
Should I Speak with a Tax Lawyer?
It can be difficult to understand how deductions, tax credits, and exemptions impact your income tax obligations. Consider speaking with an income tax lawyer if you need help with a married tax return. Tax lawyers and CPA’s can help you avoid costly mistakes and IRS penalties.