This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

10 Tax Tips For Newlyweds

NEW YORK ( TheStreet) -- American newlyweds have cleared one financial hurdle already, paying on average more than $25,000 for a wedding in 2012, according to WeddingReport.com.

But right around the bend is another hurdle to clear, and this time mom and dad may not be pitching in.

The hurdle is taxes, and not paying attention to how a marriage changes your tax picture can hit newlyweds in the bank account for years after a wedding.

"When a major life change happens, taxpayers need to know it could impact their tax situation," explains Kathy Pickering, executive director of The Tax Institute at H&R Block (HRB - Get Report). "Not understanding the impact of the resulting tax changes to the individual and household can be costly."

What steps should newlyweds take to maximize their tax situation in marriage, especially in those all-important early years of matrimony?

Here's what our panel of experts had to say:

Tiffany Washington, founder of Waldorf, Md.-based Washington Accounting Services

The most important issue is to decide whether newlyweds should file jointly or individually. Most couples are better off filing jointly, particularly if there's a wide gap in incomes.

It's important to get this right.

When two salaries are averaged, the lesser of the two could sink the higher one into a lower tax bracket, saving both spouses money. Many people are aware of the "marriage penalty," a fine leveled at some wedded couples, but it applies only to couples earning two relatively high salaries (a combined income of more than $131,450), which might bump them into the 28% tax bracket. When a couple has that much money coming in, submitting separately could be the way to go, because averaging the incomes won't help. The other common reason to file separate returns is when writing off medical expenses. To be deductible, these expenses must add up to more than 7.5% of adjusted gross income, an amount that's easier to achieve filing solo.

Lynn Ballou, CFP and managing partner at Lafayette, Calif.-based Ballou Plum Wealth Advisors

Some good tax planning opportunities do exist for newlyweds.

For example, if one spouse is self-employed while the other is a W-2 earner, you may be able to shift the income tax burden to the spouse with the systematic paycheck. Do that by increasing that spouse's withholding and live on the income the self-employed spouse brings home, thus avoiding the fun of estimated taxes. And if only one spouse has a pretax plan for paying for medical insurance premiums, you can switch coverages to that spouse's plan.

It's also important to coordinate participation in IRAs and other retirement plans such as Roth IRAs based on income thresholds. You've got to earn less than $188,000 if married and $127,000 if single to be eligible to fund your Roth. Just because you qualified for the contribution as a single person, don't just assume you can continue to contribute now that you are married.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
HRB $31.23 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%
TSLA $206.79 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs