Matt Armstrong, a financial adviser (and a newlywed) at Rockford, Ill.-based Savant Capital Management
The best advice for newlyweds is to review your filing status, exemptions, income and withholding during the year you are marrying, the earlier the better. This will give you time to tweak your exemptions, increase or decrease the amount of federal tax coming out of your check with a smaller impact on your monthly cash flow and help avoid that April 15 surprise.
More specifically, tax situations that exist as single taxpayers can occasionally create adverse consequences as a married couple, leaving the tax preparer doubling as a marriage counselor.
Just remember: The past year is done. It cannot be changed. So if your new spouse made $30,000, had minimal withholding and you now owe $4,000, outside of burning up cash flow to contribute to an IRA or HSA you may qualify for an installment agreement (See IRS Form 9465) that will spread the payments over a year or more. Focusing on the obvious can create undue harm to a new marriage; instead, focus on the changes to the current year that can help you avoid the same outcome next year.
Paul Gevertzman, partner at accounting firm Anchin, Block & Anchin in New York CityTaxes on homes owned is a big issue. For instance, if a home is sold as a result of combining two households, newlyweds may be eligible to exclude some or all of the gain. If the seller owned and used the home as a main residence for at least two of the past five years before selling it, usually the seller can exclude some or all of the gain from taxable income. The maximum exclusion is $250,000, but for joint filers it can be up to $500,000 if they meet all three of these tests:
- 1. Either one of the spouses meet the two-out-of-five-year ownership requirement.
- 2. Both meet the two-out-of-five-year ownership requirement as a principal residence test.
- 3. Neither excluded the gain from a sale of a residence in the two years prior.
- Notify the IRS of any change of address (Form 8822).
- Contact the Social Security Administration if one or both spouses changes a name. This will ensure that earnings for purposes of Social Security and Medicare taxes are properly credited.
- Adjust withholding on wages (file a new W-4 with the employer) if necessary so the couple is not over- or under-withheld.
- Adjust fringe benefits (for example, it may be possible for one spouse to forgo employer-provided health coverage if the other spouse's employer offers coverage for both so the spouse without employer coverage can get other types of employer-paid benefits).
- For estate tax purposes, it may be important to protect assets for children of a prior marriage. Even though the estate tax exemption amount may be sufficient to shield most estates from taxation, the use of trusts and other arrangements may be advisable in second marriages.