Newlyweds? Tips For Filing Your Tax Return
When you get married, you're not only combining homes, but possibly tax returns. as well. Will marriage save you money on your taxes, or will you be penalized with a tax bill for your nuptials? Follow these steps for the lowest possible taxes as a wedded couple.
Can You File as a Married Couple?
There are two restrictions on filing separately that could automatically end discussions regarding these options, or have you thinking harder about which tax option to choose.
- Prohibited Deductions and Credits
If you file as married filed separately. you cannot claim student loan interest deductions. tuition and fees deduction, the education credits and earned income credits. If you qualify for more than one of these credits and deductions, it's possible you could lose more than a thousand dollars of your refund by filing separately.
In addition, if you file as married filing separately. you both have to choose either to take the standard deduction or itemized deductions. What that means is that one of you has enough deductions to file an enormous amount of deductions, such as business or medical expenses, and the other spouse has to do the same.
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. And the rules
can vary by state. Your combined income could be split equally between the tax returns, and negate the purpose of filing separately. If you plan to file married filing separately, it would be wise to use tax software or hire an accountant.
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 of a spouse incurred before the marriage.
However, filing separately for this reason may not be necessary. IRS Form 8379. Injured Spouse Allocation, can be filed each year with your married filing jointly tax return until your spouse gets caught up on his/her debt. This can help the spouse who doesn't have the debt not be penalized for their half of the return. Plus, deductions and credits not available to those filing separately can still be declared.
For instance, let's say Julie and Jim get married on December 27, 2013. Julie is a marketing manager whose taxable income in 2013 was $55,000. Jim just completed his MBA on December 15, 2013 and has taxable income from his fellowship of $8,000. Without her soul mate, Jim, Julie would pay 25% of her taxable income above $36,250, now she pays 15% of that amount. Plus, they would get to claim the deductions and credits that would be prohibited for married filing jointly. (For a full list of tax rates, read Money Saving Year-End Tax Tips .)Source: www.investopedia.com