Monday, February 09, 2009

Valentines Day & Taxes: 7 Tax Tips for Married Couples

It is almost Valentines Day, and love is in full bloom. Unfortunately, so is tax season, which is one of the busiest time of the year for millions of married couples. Between the ever-evolving tax code, dozens of new credits and deduction, it can hard for married couples to know where they stand. In the spirit of Valentines Day, I decided to put together the following list of my favorite tax tips for married couples.

1. The Marriage Penalty

The marriage penalty is a word that is commonly thrown around during tax season, but most people do not have a clue what this penalty is. The so-called penalty is levied on couples that make enough money to put them above the 15% tax bucket. It causes personal exemptions to phase out, reductions in itemized deduction limits, and a phase out of child tax credits for those with an adjusted gross income of $110,000 or more. However, there are several ways couples can still make the best of their marriage financially, and find other ways to save in their taxes.

2. Filing Status

Since you have the choice to file jointly or separately, you should always see which one costs less. However, figuring out which filing status benefits you most can be very difficult and confusing to figure out. If you are seriously considering changing your filing status, then I highly recommend you speak with a tax professional who can evaluate the pros and cons of every option.

3. Newlyweds

The first and foremost tax rule for newlyweds is to make sure that you are married, in the correct year. In order to qualify as “married” for tax purposes, you and your spouse must be married by December 31st of that year. If you changed your last name during marriage, you will also need to get an updated social security card with the new name for tax season.

4. Medical Expenses

If you or your spouse accumulated a lot of medical bills in the tax year, then filing separately may benefit you greatly. Taking the burden on in a joint return could result in less deduction choices, as well as probable overall return loss. But as with all changes to filing status, you want to make sure to thoroughly investigate your options before making a decision.

5. Tax Debt

Unpaid tax debts can be tricky once you become married, because it could expose your spouse to liability for some of your mistakes. Especially if you file a joint return. If your spouse was expecting a significant tax refund, he or she will be in for a rude awakening if the refund is held to pay-off your old debt. Luckily, the IRS has relief for this situation—Injured Spouse. However, if you have a large amount of unpaid taxes that you will not be paying off any time soon, then you should definitely consider filing separately. You should also consider informing your spouse of the underlying debt to avoid any unnecessary surprises.

6. Update Withholdings

After getting married you want to make sure to remember to adjust your withholdings at work, so that you do not overpay the government. Overpaying by a little bit is okay, but you want to make sure that your withholdings are as accurate as possible. No need to pay Uncle Sam any more money than necessary.

7. Consider Hiring a Pro

Unless you or your spouse works in the tax industry, I highly recommend hiring a professional to help you with your taxes. Even if you have been married and filing together for years, tax codes are always updating and changing. At least check with a specialist before sending your forms in make sure you have taken advantage of any and all credits and deductions.

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