Nerdy Mc Nerd Nerd: Newlywed Tax Tips

So... I am an accountant. In lieu of tax season I am going to share a little dose of my knowledge with ya! I wrote this paper a while back in my MBA program. Don't worry; it has been proofed by a tax professional and the knowledge is accurate to date. It's not a cutesy lovey blog, but it is informative.

check it.

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Megan Wynn {Volnoff}

Dr. Gaines

Income Tax II

April 21 2010

Tax Advice to Newlywed Couples             

              Weddings are joyous occasions! Oftentimes, newlywed couples do not look past the wedding bells and honeymoon to the financial aspect of a marriage. Combining finances is sometimes a difficult task, but thinking ahead can smooth the tax planning process. With a new name, a new spouse, new expenses, and possibly a new house, it is important to stay organized! Notifying the correct organizations of name and address changes, keeping up with receipts from large purchases, and doing an overall survey of finances are a few ways for newlyweds to easily plan for their first joint tax return.

              Newlywed couples will  face the battle of choosing between married filing jointly and married filing separately.Note: a taxpayers marital status for the tax year is determined by his/her status on December 31 of that year.If one married on December 30, he/she is deemed by the IRS married the entire year. Filing jointly makes both individuals liable for payments or penalties. Filing separately excludes some deductions that may benefit the newlywed couple. Because it is rare that couples are married for the entire year, they are disallowed to prorate their income and use different rates for segments of the married and non-married year. The only way to determine which status suits the couple best is to calculate the refund/liability under both married filing jointly and married filing separately then compare the tax consequences based on each individual basis.

              When the couple determines their new address, they will both need to submit form 8822, “Change of Address,” to notify the Internal Revenue Service (IRS) of a new mailing address. This can be submitted at any time throughout the year. This form cam be printed directly from the IRS’ website at www.irs.gov. The IRS also recommends that each taxpayer notify their employer and post office of a new address. Informing the employer will prevent any lost W-2s which can delay the filing process. Form 8822 can also be used by the bride to notify the IRS of her new name. She will also need to contact the Social Security Administration (SSA) if the bride changes her name. Form SS-5 will be used to inform the SSA of the new name and request a new card. This process will associate her Social Security Number with the new name.

              Prior to the wedding and moving in together, the couple will need to begin to keep up with transactions and occasions that will have tax consequences. The couple will need to keep up with donations (or contributions) made, cash or noncash.  These deductions do not have to be made after the marriage. The taxpayer can deduct his/her contributions from the entire year on the joint tax return.

              Because a lot of newlywed couples have just graduated from college, student loans have a large impact on their financial situation. Student loan interest is claimed as an adjustment to income; therefore, the taxpayer(s) does not have to itemize deductions on Schedule A in order to claim it. If interest was paid on a qualified student loan during the tax year, your filing status is not married filing separately, your modified adjusted gross income is less than $145,000, and your spouse is not claimed as a dependent on another taxpayer’s return, the student loan interest deduction can be claimed. A qualified student loan is simply one taken out to pay for educational expenses.              

              Another deduction newlywed couples often incur is the deduction of mortgage interest. “Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan” (irs.gov). The taxpayer must itemize deductions on schedule A in order to claim the mortgage interest deduction. If the taxpayer is not legally liable for the mortgage, he/she cannot deduct it. For example, paying mortgage interest for a friend or relative cannot be deducted on the payer’s return. The IRS website explains the mortgage interest in extravagant detail. It can be accessed through publication 936.

              Also, when a taxpayer does not have extraneous medical expenses, he/she fails to keep up with them. A miscellaneous co-pay here and an occasional antibiotic there add up. Keeping up with these expenses can boost a return or lower a liability. Money paid for eyeglasses or contacts can also be deducted. When planning for a family, a young bride might receive a birth control prescription; this is also a deductible medical expense. Taxpayers must itemize deductions on Schedule A in order to claim these expenses. For a complete list of medical expenses see the IRS website, publication 502.

              Weddings are not exactly an inexpensive occasions. Plenty of money is spent by the bride and groom in preparation for the ceremony and the new home. Large expenses such as furniture, appliances, and possibly new cars often occur around the time of a wedding. “If you saved your receipts throughout the year, you can add up the total amount if sales taxes you actually paid and claim that amount” (irs.gov). This deduction can be very beneficial to a newlywed couple (and the bride’s parents)!

              Keeping up with expenses throughout the first year of marriage will set the tone for years to come. Sitting down and discussing personal expenses, assets owned, and even how much money is saved will be a key to a successful first tax return. Not all of these may have tax consequences, but it is important for each spouse to know the exact financial position of the couple as a whole. Combining finances is an intricate task. Many options and opinions exist on how finances should be handled: combining savings/checking accounts, who is responsible for bill pay, how much money is spent, etc. One couple will not handle money the same way as any other, so it is important to stay organized to ease tax preparation. File folders, or even digital folders of scanned receipts, are helpful. Creating a cumulative spreadsheet for the tax year can aide the couple, too. Many resources are available for newlyweds, including the IRS website itself. Planning for your first married tax return long before April will save the couple many a headache!