When you decide to tie the knot with your significant other, taxes are the last thing on your mind. Your focus is more likely on planning your wedding and deciding where you’ll go for your honeymoon.
However, as you settle into married life, it can be worth thinking about how your nuptials affect your tax obligations. You might be surprised to learn about the following changes.
A Different Tax Bracket
Many couples seek out the best tax accountant in their local area once they discover that combining their incomes will change their tax bracket. Having an expert on hand can help you ensure you get the best result from the financial changes your marriage will bring.
For example, if two spouses have vastly different salaries and file jointly, the lower earner can pull the higher earner down into a lower bracket, thus reducing your overall tax obligations. This would mean that you don’t have to part with as much of your hard-earned money as you would if you filed separately.
Credits and Deduction Eligibility Can Change
If you’ve always filed independently, you’ve likely enjoyed a wide range of deductions and tax benefits like the Lifetime Learning Credit for study, the Earned Income Tax Credit, and the American Opportunity Credit.
While your financial situation may be much more stable when you’re living with your spouse, losing such credits can cause some people to take quite a significant financial hit.
Strategic Filing Process
Married couples have the option of filing joint or separate returns. Often, they base their decision on which will result in having to pay more or less tax overall. Hiring an accountant to assist with the filing process can be beneficial since they can view your financial information and help you make an informed decision before you start filling out the paperwork.
Less Time to File
Filing taxes is most people’s least favorite pastime, which is one of the reasons why millions of people fail to file or fall behind on their taxes. Fortunately, filing can often be faster, easier, and less stressful when you’re married and filing jointly.
Instead of filling out two forms, one for each spouse, you only need to fill out and file one. It can take even less time if you provide your accountant with your information, and they submit your tax information on your behalf.
Your Personal Residence Capital Gain Exclusion Doubles
If you were single and decided to sell your home after living in it for less than two of the previous five years, you would need to pay capital gains tax on profits of more than $250,000. However, if you were married and sold a house after living in it for the same period, you might only need to pay capital gains tax on profit over $500,000.
You’re Liable for Mistakes
The American tax system is complicated, which means making errors is a lot easier than many people realize. You might enter items on the wrong line, fail to enter information as it has been reported to you, or make critical mathematical errors.
When you get married and file jointly with your spouse, any errors they make are yours, and any errors you make are theirs. You are equally liable, and this can be troubling if your financial situation is already complicated.
Taxes are complicated, regardless of whether you’re single or married. So, it’s worth being aware of how your tax obligations change after tying the knot. That way, you can be better positioned to manage the upcoming tax season.