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Married. Engaged. Living Together: Tax Status Changes and When They Matter

Posted by Zinner & Co. Audit and Assurance Team on Sep 22, 2015 10:08:41 AM

For engaged couples, there seems to be a never-ending list of things to plan ahead of the “big day,” including invitations, bridal party, the venue, wedding colors, first-dance song, and most romantically, the IRS. 

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For recently married or soon-to-be married couples, there are some important steps to take in advance of exchanging vows to avoid unpleasant tax consequences as an unpleasant memory of your first year of marriage. Tax status changes are the often-forgotten task on the couple's to-do list. 

What can you do as a couple to prepare for the shift from single to married in the eyes of the IRS? Here are 7 “must do” action items before the big day:

  1. Notify the Social Security Administration to report any name change so your return will not be rejected due to the social security number not matching their name on file.  Use Form SS-5, Application for a Social Security Card, either at your nearest SSA office, or at www.ssa.gov, or by calling 800-772-1213.
  2. If you move, be sure to notify the IRS of your new address by using Form 8822, Change of Address form.  This form may be downloaded from www.IRS.gov, or by calling 800-829-3676.
  3. Also, notify the U.S. Postal Service of your new address so they can forward any refunds or tax notices to you.
  4. Notify your employer of your new address so you will receive your W-2 after the end of the year when it is time to do your taxes.
  5. Check that your withholding for both you and your spouse is adequate for your potentially higher tax bracket, and if necessary, request additional withholding from either you or your spouse’s employer.  An IRS Withholding Calculator is available on nwww.IRS.gov or, consult the Zinner tax department to assist in calculating your withholding.
  6. You may be able to qualify for itemized deductions.  If so, ensure you file a form 1040, and not a 1040A or 1040EZ.
  7. It may be beneficial to calculate the tax owed in filing both individually and jointly to see which results in the lowest possible tax.  Usually filing jointly will result in a lower tax, but there are scenarios where filing individually is best. Your tax advisor can run the scenario’s both ways.

Some considerations for filing jointly with your new spouse:

  • If you file jointly and your spouse underpays your taxes, the IRS can hold both of you liable for the underpayment, and also for interest and penalties.
  • Under Joint and Several Liability Rules, the IRS can go after either spouse for the entire tax bill. One spouse may be held liable for the entire tax bill even if all the income was earned by the other spouse.   Related read: Windfalls: Be Prepared!
  • If you file a tax return as married filing separately however, you are not responsible for claims or misstatements made on your spouse’ return.
  • If privacy of finance or other information is a concern, bear in mind that even if you file a joint return without your spouse’s help to keep finances private, your spouse is entitled to a copy of the return from the IRS.
  • Keep in mind that some deductions have a floor (Medical Expense Deduction) of income that the deduction must exceed in order to be claimed.  If income rises when filing joint, so will the floor to claim certain deductions.

Benefits of filing jointly include:

Situations when filing separately is preferred:

  • If the tax on separate tax returns when combined is similar to that of a joint return, separate filing maintains separate responsibility for the accuracy of the return and payment.
  • If one spouse is unwilling or unable to file a joint return
  • One spouse suspects the other is omitting income or overstating deductions and they do not want to be held personally liable for that spouses tax return
  • The spouses are separated but not yet divorced, and wish to keep their finances as separate as possible

Same-sex married couples may filed a joint tax return using the married filing separately status.  Domestic partnerships, living together arrangements or civil unions are not considered to be married for federal tax filing purposes.

Understanding tax filing status’ can be confusing, but with proper guidance, you can enjoy peace of mind knowing you are positioned in a favorable filing status no matter what phase in life you are in today or will be in the year to come. For more information on filing status’ or questions regarding this topic, please contact me at cblankschaen@zinnerco.com.

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Topics: Taxes - Planning, Rules and Returns

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