Newlyweds & Taxes – As Two Become One
June 10, 2013 by Stephanie Potash
Newlyweds & Taxes – As Two Become One
by Hannah Thoms, CPA, MST, CFP©
Hannah is a Senior Manager and specialist in the areas of estate, tax and personal financial planning at Gordon Advisors, P.C.
Tying the knot is a joyous time and it should be. It’s a proclamation of unity. With unity also comes intricacy; for example: how you file your taxes.
Once married, you no longer check the single box on your individual income tax return. You file either married filing joint or married filing separate. With married filing joint, you file one return for both of you; whereas, with married filing separately, you each file your own return. It doesn’t matter which month you get married, for tax filing purposes you are considered married for the whole year.
Filing joint often results in lower tax; however both spouses are considered jointly and severally liable for the tax return filed. Filing separate may be tax beneficial for some newlyweds. Even if it is not tax beneficial; it may be preferred in keeping financial lives separate. With married filing separate there are also limits on tax benefits, such as education credits or child credits.
Once the honeymoon is over, be sure to update your tax withholdings at work. The amount of tax withheld on your paycheck is based on the number of withholdings you claimed on your Form W-4. The more allowances you claim, the less tax is withheld. If enough tax is not withheld, you may owe a penalty when you file your return.
Other financial considerations for newlyweds include:
– If you change your name, be sure to inform the Social Security Administration.
– Review retirement accounts and life insurance policies:
- Update beneficiary designations
- Consider need for life insurance
- If one spouse is not working, they may still be able to contribute to an individual retirement account (IRA).
– Review employer benefit plans to maximize benefits and update if adding spouse.
– Prepare or update estate planning documents.
As two become one not only is a commitment for spending the rest of your life with your true love and best friend; it’s a commitment on how you handle your finances and file your taxes returns as well.