Recently married? Here are answers to tax questions for newlyweds
With the flurry of June weddings behind us, newlyweds now turn to the practical aspects of managing their new lives together, including taxes. Let’s address the tax questions newly married couples (and their family members) often have on their minds.
Now that we are married, how do we file our taxes?
Your filing status for the year is determined by your marital status as of Dec. 31. If you were married by that date, your two choices are to file either as Married Filing Jointly or Married Filing Separately.
Married filing jointly
—This is the most common and often the most beneficial option for married couples.
—You and your spouse combine your income and deductions on one tax return.
—Benefits can include the increased ability to claim certain tax credits and deductions and to reduce capital gains, leading to a lower overall tax liability.
—However, both spouses are responsible for the accuracy of the return and any tax owed.
Married filing separately
—Each spouse files their own tax return, reporting their own income, deductions, and credits. Both spouses are only responsible for their own tax return.
—Only 5% of married couples file this way because it can result in a higher overall tax liability, as many tax benefits are reduced or eliminated.
—However, this option can be beneficial in particular situations, such as when one spouse has deductions that would be limited by the other spouse’s income.
—Also, if you have an income-driven federal student loan repayment plan, it could dramatically cut payments if based on only one spouse’s income.
—When filing separately in community property states like California, preparing the return becomes more complex, and each spouse typically reports half of all community income, even if one spouse earned all of it.
Consulting with a tax professional can provide guidance tailored to your specific situation. The tax programs professionals often use can compare the tax liability for married filing jointly vs. married filing separately.
It is important to remember not to continue to file as single if you are married. The tax authorities can request to see your marriage license to confirm your wedding date.
Q: My spouse has debts, including tax debts and garnishments. Am I responsible for those?
A: Any tax debts incurred before marriage remain the responsibility of the individual who incurred them. However, if you file jointly, both spouses are generally liable for any tax, interest, and penalties owed. If concerned, consider filing separately or seek advice on protecting yourself by requesting innocent spouse relief.
Q: What is the marriage penalty, and how do we avoid it?
A: The marriage penalty occurs when married couples pay more in taxes than they would as single filers, often due to tax bracket thresholds, deductions, and credit phase-outs being less favorable for married couples.
However, in some cases, you may qualify for several tax benefits as a married person filing jointly, including the Earned Income Tax Credit, the Child and Dependent Care Credit, and higher contribution limits for IRAs and other retirement accounts. Consulting with a tax advisor can help identify the best approach to minimize the marriage penalty.
Q: We didn’t create a prenuptial agreement before we got married. Is it too late to do one now?
A: While you cannot create a prenuptial agreement after marriage, you can create a post-nuptial agreement. A post-nuptial agreement serves a similar purpose as a prenuptial agreement, outlining the division of assets, financial responsibilities, and other matters should the marriage end in divorce. You should consult with an attorney specializing in pre- and post-nuptial agreements to draft them and ensure they are legally binding and fair to both parties.
Q: We helped pay for a large wedding. Is that taxable to the newlyweds?
A: Gifts are generally not taxable to the recipient. However, if the gift exceeds the annual gift tax exclusion amount ($18,000 per person in 2024), the giver must file a gift tax return (Form 709).
No gift tax is due until the cumulative lifetime gift amount exceeds the lifetime exclusion limit. Most of us do not have to worry about taxable gifts because the threshold for 2024 is $13.61 million.
The good news is that if you are married, you and your spouse can each gift to your child and their spouse $18,000, for a total excluded gift of $18,000 x 4=$72,000 per year. In other words, you and your spouse can give the couple $72,000 without filing a gift tax return.
Q: We invited several business associates to the wedding. Are any of the expenses we paid for the wedding tax-deductible?
A: Generally, wedding expenses are considered personal and not tax-deductible. However, if any portion of the wedding expenses were donated to a qualified charity, that amount could potentially be deducted as a charitable contribution.
Q: We’re not confident this marriage is going to last. How do we give funds to our child to invest if we don’t want their spouse to have access to these funds?
A: Gifts are generally considered separate property in a marriage unless they are co-mingled. An example of co-mingling would be depositing the gift in a joint bank account. However, setting up a trust is one effective way to give funds to your married child while ensuring their spouse cannot spend the money. By placing the funds in a trust with your child as the beneficiary, you can specify how and when the funds can be used.
Consult an estate planning attorney to establish the trust and outline the specific conditions.
As Mark Twain said, “To get the full value of joy, you must have someone to divide it with.” Here is a toast to confidently navigating your financial future by staying informed, communicating with each other, and seeking expert advice when needed. (And if they say it will not last, prove them wrong!) Congratulations on your marriage, and may your life together be both joyful and financially sound.
Michelle C. Herting is a CPA, accredited in business valuations, and an accredited estate planner specializing in succession planning and estate, gift, and trust taxes.