Taxes are probably the last thing you’ll want to think about after getting married, considering everything else that’s piling up on your plate. Starting a new life with your spouse incurs many lifestyle changes, and you may feel either overwhelmed or empowered by everything that’s going on. You’re no longer flying solo. You and your companion will be sharing almost everything in your lives from here on, and that includes the good as well as the bad, for better or worse as they say. When it does come time to do your taxes, you’ll want to be prepared for changes in this part of your life as well.
There are two options for married couples filing their taxes. You and your companion can file jointly or choose a separate filing status. There are, of course, positive and potentially negative consequences tied to either choice, and it is important to understand these consequences when making your decision.
One of the main concerns for married couples is the tax history of each party involved. If you and your spouse file jointly as a married couple, your individual liabilities become shared liabilities. The most common reason for married couples to file separately is a history of tax misdeeds including any underpayments, back taxes, or debts and penalties to the IRS. When one individual has a clean tax history compared to their spouse’s messy record, it is often the most prudent choice to file separately until these issues have been resolved. Should you choose to file jointly, you become legally responsible for one another’s finances. Consider how this will impact your financial situation.
On the other hand, there are several benefits to filing jointly if you and your partner feel secure enough in each other’s financial practices to take the leap. Joint filing is simpler because there is only one tax return to file. There is no need to figure out the division of income, assets, expenses and deductions. Everything gets lumped into the same pile. This is often the cheaper way to file as well, because married couples filing jointly are eligible for tax breaks and credits to which unmarried couples and separate filers are not privy.
Due to technicalities in the tax procedure, some couples end up paying more through joint filing than they would pay as individuals. This is known as the marriage penalty, and comes about if you and your spouse have nearly equal income levels that combine to a total of over $137,300. Income over this level is subject to increased tax rates, resulting in higher payments. In arrangements where one spouse can claim the majority of taxable income in the relationship, this penalty is usually avoided.
Educate yourself on these issues as much as possible before filing your first tax return as a married couple. The world of taxes is complicated and intimidating, but by knowing and playing by the rules you can make the best of it for you and your spouse.