Marriage & Taxes: Filing Options from a Financial Advisor

The Wedding Report, a group that collects industry data, says by the end of 2024, about 2.2 million couples will get married.  If you’re among the newlyweds, you might be thinking about what marriage means for your taxes.

One of the first steps is notifying the Social Security Administration if you changed your name. This ensures that the IRS can match your new name with your Social Security number. If you’ve moved, it’s important to update your address with the IRS. This way, any tax refunds or messages will reach you on time.

Another important decision is choosing how to file your taxes—either as married filing jointly or married filing separately. Here’s some guidance on how to make the best choice for your situation.

Tax Filing Options for Married Couples

How you choose to file can impact several aspects of your tax situation:

●      Which credits you qualify for

●      The portion of your income exempt from taxes if you opt for the standard deduction instead of itemizing

●      Your tax rate, or the percentage of your income that goes to taxes

●      Your eligibility to contribute to certain accounts, like Roth IRAs

There are five main filing statuses:

1.     Single

2.     Married Filing Jointly

3.     Married Filing Separately

4.     Head of Household

5.     Qualifying Widow/Widower with a Dependent Child

Some people may qualify for more than one status. However, married couples have only two choices: filing jointly or separately. This starts from the year they got married, with taxes due by April of the next year.

Once you are married, you cannot file as single. You can only do this if you become legally separated, divorced, or if your spouse dies. This rule starts in the tax year after the event.

So, what do each of these statuses mean for married couples? Here's a breakdown of the differences.

Single Filer: How Most People File Before Marriage

A single filer is generally someone who is not married and does not have dependents. This status doesn’t allow for other categories like head of household or qualifying widow/widower.

When you file as a single, your income falls into single tax brackets. These brackets usually have lower limits because they only consider one income. Once you're married, you’re no longer eligible to file as single.

Married Filing Jointly

Filing jointly means you and your spouse report your combined income, deductions, and credits on one tax return. You will share the same tax rate. This status makes both partners equally liable for any taxes, penalties, or interest owed to the IRS.

If you are due a refund, you can split it into multiple checks. You can also deposit it into several accounts or do both.

Married Filing Separately

When you file separately, each spouse submits an individual tax return, meaning two separate filings. If one spouse chooses to file separately, the other must do the same.

You are taxed only on your own income. You can claim deductions and credits that apply to you.

Both partners must agree on whether to itemize deductions or take the standard deduction. Itemizing means listing specific deductions like mortgage interest or charitable donations. You cannot mix these two options.

Head of Household

You can use this status if you are unmarried and have a qualifying dependent. A qualifying dependent can be a child, sibling, or parent you support financially. You must also cover more than half of your household expenses, such as rent, food, and utilities. Filing as head of household can result in a higher standard deduction and lower tax rate than filing as single.

Is It Better to File Taxes Jointly or Separately?

Choosing the right filing status is crucial, as it can lead to significant tax savings. Here’s what to consider when making your decision. In most cases, couples who file jointly tend to get more tax advantages compared to those who file separately. Here are a few examples:

●      Joint filers have a better chance of qualifying for credits like the Child and Dependent Care Credit.

●      Joint returns often allow for higher income limits when it comes to tax breaks, such as contributions to an IRA.

●      If you file separately, you miss out on some important education benefits. These include the American Opportunity Tax Credit, the Lifetime Learning Credit, and the chance to deduct student loan interest.

●      Filing jointly also gives access to a larger standard deduction. In 2024, married couples filing jointly have a standard deduction of $29,200. In contrast, married individuals filing separately get $14,600 each.

However, there are certain situations where filing separately might be beneficial:

●      If you are on a student loan income-driven repayment plan, filing separately may lower your payments. This is because your payments would be based only on your income, not your combined income.

●      If you have high medical expenses, it may be easier to meet the 7.5% income limit for deductions. This is especially true when only one income is counted.

●      Filing separately can be a good choice if you are going through a divorce or separation. This way, you can keep your tax liabilities separate from your spouse’s.

Bonus Tip: Review Your Withholding

If you haven't done it yet, you and your spouse may need to update your tax withholdings. This is the part of federal income tax taken from each paycheck. This helps you avoid overpaying (leading to a big refund) or underpaying (resulting in a tax bill or penalties).

To find the right amount, use the IRS Tax Withholding Estimator. It will ask you questions about your income, credits, and deductions. If adjustments are needed, you can fill out a new W-4 form and submit it to your employer.

Bottom Line

Navigating taxes as a newly married couple can feel overwhelming. However, making smart choices about your filing status can greatly impact your finances. Whether you decide to file jointly or separately, taking time to understand the implications for deductions, credits, and withholdings can save you money and prevent surprises down the road. By staying organized and proactive, you can make tax season a smoother experience for you and your spouse.

Sources:

https://www.fidelity.com/learning-center/smart-money/married-filing-jointly

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information

Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.