One thing that changes for newlyweds are the best tips for filing your tax return. You are no longer single (or a head of household). You are now, by the power vested in you by the IRS, married filing jointly—or maybe filing separately. How you file once hitched could determine whether your tax bill or refund increases or decreases. Follow these steps for the lowest possible tax payments or highest refunds as a wedded couple:
Determine If You Can File as a Married Couple
You must be married on the last day of the tax year for which you and your spouse are filing as a married couple. For instance, you won't be able to declare yourself married on your 2019 tax return if you got married on January 1, 2020. The same rules apply to legally married same sex couples as to any other legally married couple.
- Deciding whether to file married filing separately or jointly can make a difference of thousands of dollars on your tax return.
- You have to be married on the last day of the tax year to file as a married couple.
- Student loan interest deductions, tuition and fees deductions, education credits, and earned income credits are only available if you file as married filing jointly.
- If you owe back taxes, your spouse won't be penalized when they file jointly with you—as long as your spouse files the Injured Spouse Allocation form.
- Before deciding how to file, use tax software to fill out practice forms for both married filing separately and married filing jointly.
Review Restrictions on Married Filing Separately
Married filing jointly is the more common way for couples to file, and there are plenty of reasons why that is so, including access to deductions and credits. But that isn't true for every couple. Sometimes filing separately makes more sense. Living in a community property state, tax liens on one spouse, or restrictions on claiming deductions could make the decision about how you file easier or harder. Here’s what you have to consider on each of these issues:
Prohibited Deductions and Credits
Filing as married filing separately prohibits you from claiming student loan interest deductions, tuition and fees deductions, education credits, and earned income credits. You could reduce your tax refund or raise your tax bill by more than a thousand dollars by filing separately.
If you're married filing separately, both spouses must either itemize or take the standard deduction—you can't do one of each.
The married filing separately tax choice also limits your options on taking itemized or standard deductions. For instance, if one of you has enough deductions, such as business or medical expenses, to itemize their tax return, the other spouse has to itemize, as well, even it they'd lose out on the Tax Cuts and Jobs Act's generous standard deduction. If the deductions are big enough—especially if it's the less well paid spouse who had, say, $40,000 in medical expenses for the year—the filing-separately choice may be worth it.
Living in a Community Property State
If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin, you will have to deal with a whole set of complicated rules to decide what is considered community or marital income, and what is considered your income.
The rules can vary by state. Your combined income could be split equally between the tax returns and negate the purpose of filing separately. Consider using tax software—or hiring an accountant—if you live in a community property state and want to file separately.
Discuss All Possible Tax Liens
One reason many married couples file separately is that they have prior debt that is past due and could be deducted from their taxes. This includes past-due child support, past-due student loans, or a tax liability one spouse incurred before the marriage.
The good news: Filing separately because of tax liens may not be necessary. The couple can file IRS Form 8379, Injured Spouse Allocation each year with their married-filing-jointly tax return until the spouse with liens gets caught up on their debt. This keeps the spouse who doesn't have the debt from being penalized for being on the return and losing out on their share of any tax refund. Plus, by filing jointly, the couple can still declare deductions and credits not available to those filing separately.
Consider the Income Factor
When one spouse makes more than the other, the marginal tax rates for both of them could be the best wedding present they've ever received.
For instance, let's say Julie and Jane get married on December 27, 2019. Julie is a marketing manager whose taxable income in 2019 will be $55,000. Jane completed her MBA on December 15, 2019 and will have taxable income from her fellowship of $8,000. If she hadn't married Jane—or if she did her taxes as married filing separately—Julie would have had to pay 22% of her taxable income above $39,475 in taxes. Together and filing jointly, their marginal tax rate will never climb over 12%. What's more, they will get to claim the deductions and credits that would be prohibited for married filing separately.
Gather All Needed Documents for Filing
Both spouses need to gather receipts and paperwork that support their deductions and credits. For example, you need backup prove you can take student loan interest deductions.
Prepare Two Tax Returns (or Ask an Accountant)
If which option to choose isn't obvious, prepare taxes for both filing options: married filing jointly and married filing separately. Doing so could take an extra couple of hours with tax software. However, the potential savings is worth it. A less time-consuming strategy is asking an accountant which option is best based on your individual circumstances.
The Bottom Line
If you file married filing separately, you are going to endure a more complicated tax process, especially if you live in a community property state. You will also likely lose out on key deductions and credits. On the other hand, if one spouse has significant deductible expenses—or liens against them—filing separately might make sense.
When the answer isn't obvious, take the time to try out both options through filling out practice forms, then choosing the way that works best. And since one of the biggest reasons couples fight is money, the large refund is the best wedding present the IRS could give you.