Memorial Day always seems to be the mark of the start of summer: school’s out, Chicago pools open, backyard barbecues commence, and wedding season goes full tilt (I’ve got some insight on the tax benefits of marriage coming at you today)…
Seems strange that a holiday meant to remember those who have given their lives in service to our nation is the day that heralds fun times… then again, maybe it’s the perfect way to commemorate them.
Everyone across the U.S. of A. joined together with family and friends, getting to enjoy the freedoms others fought valiantly for. My hat is off to all of those honorable men and women… we salute you and thank you.
And with the tragic and horrifying events in Uvalde still becoming clear, it seems appropriate more than ever that we remember what heroism really looks like.
Now, a quick IRS update…
You can check the status of not only this year’s tax refund but also refunds from the previous two years as well using the Where’s My Refund? online tool. You just need: your Social Security number or ITIN, filing status, and expected refund amount from the original filed tax return for the tax year you’re checking. Comes in handy when you’re looking back at how things have gone over the past few years.
Of course, I’d be happy to chat about lessening your future tax burden (and perhaps in the last three years as well) or finding every credit we can claim on your behalf next year that could help increase that refund:
773-994-3300
And if 2022 is your year to tie the knot, I’m also game to discuss how you can have your cake and eat it too when it comes to the tax benefits of marriage (as well as the drawbacks).
Bell Tax Accountants & Advisors’s Guide to The Tax Benefits (and Drawbacks) of Marriage
“Marriage is not just spiritual communion. It is also remembering to take out the trash.” – Dr. Joyce Brothers
You’ve finally met that special someone who sets your heart aflutter – you’re on cloud nine because they said yes – they’ll marry you.
The Chicago venue is booked, the DJ is engaged, the caterer has set the menu, and all the relatives and friends you want to see have RSVPed. Now, all that’s left is the big day that will change your life forever.
In the excitement of getting hitched, no one is really thinking about the tax benefits (or drawbacks) of marriage. (If taxes are uppermost in your mind right now, you might want to re-think this whole wedding idea … )
Congrats! – And we mean it.
Also yes, your tax situation is about to change. Let’s take a look at what that means for you and your spouse.
Altered states
Here are some of the biggest changes you’ll see.
How you file. You used to be “single” in more ways than one – that was probably also your official status to file your tax returns. Once you say “I do,” you need to start using the statuses Married Filing Jointly (MFJ) or Married Filing Separately (MFS) to file your taxes. Your new married status applies for the whole year even if you got married on Dec. 31.
Your filing status is a huge determinant on your tax return, influencing such things as your standard deduction (MFJ gets twice as much), the taxes you owe, what special tax deductions and credits you might qualify for, and whether you even need to file a tax return.
How you combine income and other details. With the MFJ status, you’ll include both your and your spouse’s taxable income, exemptions, deductions, and credits on one return – less paperwork, sure, but possibly bumping both of you into a higher tax bracket, especially if the two of you combined make a lot of money. If one of you is a higher earner, though, that person might actually drop into a lower tax bracket. If you or your spouse had no income or deductions, you can still file a joint return.
You can use the MFS status to report your own income, exemptions, and so on using two separate tax returns. Even if only one of you had income, you can still file MFS, though the status usually comes with more restrictions on deductions and credits than MFJ does.
The marriage penalty. You may have heard about the “marriage penalty” of taxes. This happens when two Single filers are suddenly Married Filing Jointly but find that credits, deductions, and tax breaks don’t double with their taxable income. This does still happen, but much less often now after the tax reform of 2017.
Double down. For instance, when you marry, your new threshold for extra Medicare tax on wages falls far short of doubling from the Single rate; the investment-income tax threshold doesn’t double, either. The limit on the deduction for state and local taxes (aka SALT) is also not doubled for married couples.
Other deductions. MFJ might make it harder to reach the higher minimum percentages (7.5%) of income before you can deduct medical expenses. MFS means you can’t take your standard tax deduction for the interest if you’re repaying student loans.
Name changes. If you changed your name, let the Social Security Administration know as soon as you can. Also, see if you should change your Form W-4 on the job to reflect a change in marital status. Check with us if you have any questions.
Wedded bliss isn’t all bad
Tying the knot with your better half does come with a few outright plusses regarding your money.
You and your spouse can give each other gifts of cash or other property free of gift taxes, for instance. Marriage doubles what you can donate (as a couple) and get a tax deduction under a recently changed law, and spouses have a special option where they might be able to defer distributions longer (perhaps until they’re in a lower tax bracket) if they’re the beneficiary on a spouse’s IRA.
You might get a little break on selling a home, too: The amount of gain you as a couple can exclude from income doubles, though there are some catches concerning which of you owned the home and who lived there before you were married.
Finally, there is a touchier issue about MFJ. If your honey gets into tax trouble, you can be held responsible for it, too. MFS can free a spouse from this entanglement. By the same token, a new spouse with a favorable tax situation can lift your finances – as well as your heart.
If you need help fleshing out the tax benefits of marriage (and drawbacks) discussed in this overview or with any of the tax aspects of your life, we’re here for you:
Helping Chicago people like you with all of your tax needs is what my team and I love to do.
In your corner,
Bell Tax Accountants & Advisors
