Married couples deal with a multitude of tax – related questions. It takes time to learn how to take advantage of tax benefits and avoid possible pitfalls. And who wants to take the time to learn about taxes? Yawn! That’s why we’ve looked into it for you.
The first thing that a newlywed couple should be aware of is that the Internal Revenue Service considers you married for the entire tax year, even if you got married at 11:30pm on December 31st. Now that you know that, though, you have got to decide how you want to file.
Many couples face a debate over whether to file their taxes jointly or separately. There are a number of reasons to decide for and against each option, and they depend upon your specific situation. Here are three reasons to file jointly:
1. You are likely to be eligible for tax credits such as those for education, children, and dependents; you may also qualify for the earned income credit.
2. Your tax burden may be lower overall.
3. It’s easier to file jointly.
There are, however, some specific situations in which it would be more advantageous for you to file separately. Here are three of those scenarios:
1. If your spouse owes back taxes, the IRS could put your joint rebate toward your spouse’s unpaid balance. So, if you want your individual rebate, you should look into filing separately.
2. If you have medical bills that add up to a high percentage of your individual annual income, it would be a good idea to file separately in order to take advantage of the itemized medical deduction.
3. When one of you has chosen to take advantage of other itemized deductions such as charitable donations, it is a good idea to file separately, because the individual standard deduction is lower than the one for a couple.
Of course, filing separately has its disadvantages, as well. If you choose to do so, you should be aware that you may not be able to take advantage of some credits, such as the education credit and the dependent credit. Also, if your spouse is not working, they will not be able to make an IRA contribution if you file separately.
No matter how you choose to file, there are some major tax advantages to being married. For instance, healthcare coverage for a domestic partner is taxable as income, but coverage for a spouse is not. When selling a home, the capital gains tax exemption amount is double for a couple (from $250,000 to $500,000). Also, spouses can make gifts of any amount to each other without being taxed on them. And perhaps the most remarkable benefit is that spouses do not have to pay estate taxes on the amount that is left to them by their beloved when they depart.
Couples that are married have a slew of financial decisions to make, and being prepared and educated is a good way to know that they are getting the best for them.
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