With marriage, one not only gains a new partner in life, but also a new set of circumstances in terms of their tax liability going forward. For married couples during tax season, their two income are combined to become essentially one for tax purposes. By working with a local tax professional for married filing jointly, such as Denisha Marino in Golden, CO, you and your life partner can be sure that you are maximizing your credits and deductions to reduce your tax liability.
While in theory, there is no explicit federal policy for penalizing married couples, there are two general features of the federal income code that create this penalty. The first is the use of the family as a taxable unit and progressive taxation. As a result, married couples find it best to consult with a tax professional to determine how to mitigate the potentially larger tax liability that can result.
For married couples with one income, filing jointly works in their favor due to the current system that includes income splitting. The penalty aspect occurs when both partners have an income. These incomes are combined and split equally, essentially resulting in the couple being pushed into a higher income bracket than they would as single individual taxpayers.
An example is two single individuals who made $80,000 each. As individuals, they would pay a marginal tax rate of roughly 25%. However, if those two individuals are married, their combined income now pushes them into the higher marginal income bracket of 28%. Therefore, their combined tax bill has increased. However, there are more drawbacks for a married couple in terms of deductions.
When two individuals file their individual income tax returns, they have the choice of how they want to claim their deductions. An individual can choose to take a standard deduction or they can choose to itemize their deductions. Yet when a married couple chooses to file separately, they will both have to use the same method. Hence, if one individual does not have enough deductions to itemize, they are forced to receive less of a deduction, so their partner can enjoy the full amount of their itemized deductions.
A married couple should therefore consult with their accountant or tax professional, such as Denisha Marino, about how to address their tax liability and which filing option will work best for their situation.
Tax deductions and exemptions also tend to phase out faster if your earnings exceed certain limits throughout the year. If they have been phased out because of that increased income, you will not be able to use them to reduce your potential tax liability. Exemption limits typically fail to adjust properly to account for a marriage, so you may find yourself eligible for less tax breaks after you and your partner marry.
The U.S. government has launched two additional surcharges, such as the 0.9% surcharge for Medicare on all income and an additional 3.8% surcharge for investment income. These charges only apply when your earned income as a married couple is higher than $250,000. Therefore, you may find yourself hit with two additional charges even though you are still making the same amount, because of your combined income with your partner. Working with a tax professional can assist you in planning for these increases and assist you in minimizing their impact if possible.
One of the benefits is that when both individuals file jointly, they have the ability to combine their deductions through itemization. The result can definitely assist in reducing their tax liability throughout the year. In addition, they will receive two exemptions, along with exemptions for their dependents.
So how can you make allowances for these potential tax increases after your wedding? One is to adjust your tax withholding through your W-4. By updating this form with your employer, you can have a little more taken out with each check to avoid a larger bill in April. Consider consulting with a tax professional to estimate the best withholding amount for your situation.
You may also consider filing separately from your spouse, although there are potential drawbacks to this approach as well. The best approach is to consult with your accountant to find the best option for you and your family. Call or click on the link below to contact Denisha Marino in Golden, CO, for assistance in deciding the best approach for tax filing for you and your partner.
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