Taxes for Newlyweds

Getting married for the first (or second, third, or fourth) time can be a very exciting time.  Historically, the summer is a very popular time for couples to tie the knot, which is why now is the perfect time to consider the tax implications of their recent nuptials.  

Every year I advise several couples that are newlywed, and I see several common tax issues that present both good and bad consequences.  Everyone's situation is different, so the following items to consider will not apply to everyone.  For example, if you marry someone that is fairly wealthy, your tax situation might be out of your control.  Or, if this is your third marriage, there might be specific legal or personal issues preventing you from choosing the Married Filing Jointly status.  In all, the following are common tax issues that arise for newlyweds.  

Tax withholding on paychecks

Most likely, both husband and wife will have had their tax withholding set at "Single" during the year.  But, your filing status will be Married Filing Jointly at the end of the year (as discussed below), therefore the tax will be calculated differently.  Both husband and wife should change their W-4 to "Married" as soon as they get married.  Withholding at the single rate creates a tax benefit in that they will receive a tax refund at the end of the year, but the money could probably be better used at home than in the hands of the IRS.  

 Filing status

Married filing jointly (MFJ) is the most beneficial filing status for individuals.  You not only get double the personal exemption ($4,000 for 2015), but you also get a higher standard deduction ($12,600 for 2015).  You can use the MFJ filing status for the tax year regardless of when you were married i.e. if you got married on January 5 or December 20, you can use MFJ for that tax year.  Married Filing Separatley (MFS) in my opinion is only good for people going through a divorce or on a 2nd/3rd/4th marriage late in life.  MFS subjects the taxpayer to a higher tax rate and also disallows several common deductions, such as student loan interest.  Also, MFS requires both spouses to use the same deduction election.  So, if the wife itemizes deductions, the husband must also itemize deductions, which can lead to tax consequences for one of the spouses.  

Combining finances

Getting married not only combines 2 lives, but it combines 2 financial lives as well.  It is very common for newlyweds to itemize deductions for the first time when they get married due to combined charitable contributions, property taxes, and/or unreimbursed business expenses.   Also, if the newlywed's first act of business is to buy a house, then there is mortgage interest and real estate taxes to consider.  The best thing a newlywed couple can do is get in front of a CPA before the end of the year to determine the effect of combining 2 financial lives.  

Conclusion

Marriage is a life-changing moment and hopefully leads to nothing but good (see my future article on Taxes for Parents).  Aside from the emotional aspect of marriage, it is important to consider the financial impact as well (including taxes).  Addressing financial and tax issues before the end of the year can lead to a much happier, loving April 15th.