Basic Financial Planning for Newlyweds




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Looking For a CPA, Lawyer or Financial Advisor who has worked with lots of other newlyweds and is familiar with the issues that affect you?  

Your marital status on December 31st determines the filing status you'll use on your tax return.  If you're legally married by the time the ball in Times Square finishes dropping, you generally have only two options for that year's tax returns - either "married filing jointly" or "married filing separately".  The days of filing as a single individual or a Head of Household are over. 

For most couples, filing jointly is the way to go.  Unless you want to keep your finances completely separate from your spouse, there are only a few instances when you'd be better off tax-wise by filing separately. 

Generally, if you each earn a similar amount of money, and only one spouse incurred significant medical expenses or unreimbursed business expenses during the year, filing separately might save you taxes.  That's because both of these items are only deductible to the extent they exceed a certain threshold.  For medical expenses, the threshold is 7.5% of your adjusted gross income (AGI), and for your miscellaneous itemized deductions (which includes your unreimbursed professional expenses), the threshold is 2% of your AGI.

Let's look at an example where both you and your spouse earn $50,000, and only you incurred $10,000 of medical expenses during the year.  If you file jointly, you could deduct $2,500 of your medical expenses ($10,000 - 7.5% of $100,000).  By filing separately, your deduction jumps to $6,250.

In most instances, however, you end up paying more taxes by filing separately.  As a rule of thumb, the larger the disparity in income between you and your spouse, the more you'll save by filing a joint return.

Plus, by not filing a joint tax return, you might limit some of your tax saving opportunities, including:

  • No claiming student loan interest paid during the year.

  • The two educations credits (Lifetime Learning Credit and Hope Credit) aren't allowed.

  • Can't contribute to a Roth IRA in most instances.

  • Lose out on making a deductible contribution to a traditional IRA on behalf of a spouse not covered by a retirement plan during the year.

  • Allowable capital losses are cut in half to $1,500.

  • The maximum rental losses you can claim are limited to just $12,500 per year versus $25,000 if you file jointly. 

If you decide to file separately, the government gives you three years to amend your tax returns and file jointly.  I have some clients who initially file separately every year, and then amend their returns to file jointly.

People who file jointly, however, aren't allowed to change their minds and re-file separately.  If you prepare your own tax returns, make sure to click the button on the tax program you're using to check if you're in the minority of married couples who would save taxes by filing separate returns.




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