Getting married brings joy — and a few unexpected challenges. One such test is filing a tax return. Preparing before tax season will help couples transition to filing as husband and wife smoothly. The Oklahoma Society of Certified Public Accountants offered four tax prep tips for newlyweds.
1. Update records. A woman taking her husband’s surname upon marriage should notify the Social Security Administration and her employer of the change. This helps ensure earnings are properly reported and credited. Also, if tax returns are being filed electronically, the names on the tax return must match the name on file with the Social Security Administration. A married woman can get a Social Security card printed with her new name, by completing Form SS-5, Application for a Social Security Card. The application is available online atwww.ssa.gov.
When a marriage involves a move, individuals should complete IRS Form 8822, Change of Address. This form can be found online atwww.irs.gov or a copy can be requested by calling (800) 829-3676. Notify the U.S. Postal Service of an address change as well.
Newlyweds should also submit an update W-4 form with their employers to ensure all paychecks reflect proper withholdings from their new marital status.
2. Determine your filing status. Whether a couple is married on January 1, December 31, or anytime in between, to the IRS they’ve been married all year and must file as married taxpayers. They should consider whether filing jointly or separately is better for their personal financial situations.
Choosing the best filing status is a major tax decision for newlyweds. When filing jointly, combine income, deductions and credits, all on one income tax form. Generally, filing a joint return will result in the lowest tax bill. Remember, when filing a joint return, each spouse is personally liable for everything on the return.
Filing separately may be a better choice if one spouse has high medical expenses or miscellaneous itemized deductions. In both cases, only expenses in excess of a specific threshold (7.5 percent of adjusted gross income for medical expenses and 2 percent for miscellaneous deductions) may be deducted. Therefore, combined income on a joint return could make it more difficult to qualify. However, if filing separate returns, if either spouse itemizes deductions, they both must itemize.
On the other hand, some tax credits and deductions are reduced or eliminated for married couples filing separately. For example, separate filers can’t take advantage of education tax credits or deduct student loan interest. Figuring taxes both ways will help determine which filing status results in the lowest tax bill.
3. Know your tax bracket. If taxpayers are married and plan to file jointly, it’s possible they’ll be in a higher tax bracket based on combined incomes. For a married couple filing jointly in 2010, the rate on taxable income between $68,000 and $137,300 is 25 percent, and 28 percent for taxable income between $137,300 and $209,250. Whereas with two single taxpayers, each could have taxable income up to $82,400 and remain in the 25 percent tax bracket.
4. IRA deductions may no longer apply. A newly married taxpayer who was able to deduct IRA contributions as a single filer may find he or she no longer qualifies. A new spouse, who is covered by a retirement plan at work, may be entitled to only a partial deduction or no deduction at all. The ability to claim a deduction is determined by filing status, combined adjusted gross income and whether or not the spouse is covered by a qualified employer plan.
As new challenges arise, married couples should remember a CPA can help prepare them for a lifetime of effective financial and tax planning strategies. Visit KnowWhatCounts.org for a free CPA referral and free consultation or to get additional money management tips.
With more than 6,000 members in public practice, industry, government and education, the OSCPA is Oklahoma’s only statewide professional association of CPAs. Since 1918, the organization has continued to provide professional education, conduct quality reviews and promote and maintain high standards of integrity and competence within the accounting profession.