IRS Tax Tips for Newlyweds

Jeff Brown for Mainstreet.com writes: So you’re a newlywed doing your taxes together for the first time. Congratulations!  And sympathies. There’s nothing less romantic than filling out a tax return, and irritations over money are among the most common sore points for couples. So in addition to the advice from a recent panel of experts, here are a few thoughts to make the process, if not smooth, a bit less bumpy. (If you got married this year, or will, read on for tips on making the 2013 return easier.)

For most married couples, the first issue is whether to file a joint return or one for married folks who file separately. But before this, you must be sure you are married in the eyes of the federal government -- you must be a man and a woman, and have been married and living together on Dec. 31, of the tax year – 2012 in this case. If so, you are considered to have been married for the whole year.

Most married couples can save money by filing a joint return rather than separate ones. That’s because the Married Filing Separately return doesn’t provide for a number of tax benefits available in the joint return, including things like deductions for tuition fees and student loan interest payments, the child and dependent care credit and the earned income credit.

Among the other drawbacks of separate returns, according to TurboTax, the tax software firm, are lower income limits that make it harder to deduct IRA Contributions.   Also, if you file separately, both of you must either claim the standard deduction or itemize – you can’t each do it differently.

So why would anyone file separately?

In a small percentage of cases when there is a large difference between the spouses’ incomes, separate returns can result in a lower combined tax liability. This mainly affects people living in states that don’t view all property as the couple’s community property. Community property states are Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.

The other reason: When you file separately you are responsible only for your own return. With a joint return, you are both responsible for everything in it, and each of you must stand ready to cover the entire tax liability. In other words, if hubby won’t kick in his share, the wife has to pay it all.

A final option: filing as a married taxpayer who is the head of a household. This applies if you did not live with your spouse during the last six months of the year and you maintained a home for a child for more than half the year. This could save you money by, for example, allowing a larger standard deduction than you’d get by fling separately.

Still not sure what to do? That’s a common problem. Most people can’t be sure which filing status will work best without actually filling out the different returns. That will be less of a headache if you use a computerized system online or on your computer. Programs like TurboTax can walk you through the issue.

Once this decision is made, doing the return should seem familiar if you’ve been doing individual returns. Of course, if one spouse takes on the chore, the other spouse won’t be off the hook, because the one doing the work will need lots of information about the second spouse’s finances.

So, to make life easier for both of you, assemble all documents well ahead of time, and organize them into the necessary categories – W-2s for salary, 1099s for outside earnings and investments, lists of investments sold during the year and the cost when they were purchased, and so on.

Remember that if you file a joint return you are in this together, and you’ll both pay the price if one of you fudges on income, overstates business expenses or does some sloppy arithmetic.

Should you hire a pro? If you both felt you needed a professional tax preparer when you were single, maybe you should. But if either spouse felt comfortable doing a return as a single, the returns for married folks should not be any more challenging.

There may be an exception, though, if one or both spouses have dependent children from a previous marriage or relationship. You need to be certain that you and the child’s other parent are each doing things correctly, like determining who takes the tax deduction for a dependent. Maybe it’s worth paying a pro to be sure you do this right.

If you got married this year, or plan to, a few moves will make the 2013 return easier to do next year. Each spouse, for example, should file a new W-4 form at work to be sure the tax withholding is correct.

And, obviously, if one or both of you has changed address, make sure your bank, broker, mutual fund companies and lenders all know where to send your tax documents. Download and file IRS Form 8822, a change-of-address form that will assure the IRS sends all communications to your new address. And a spouse who has changed his or her name should obtain a new Social Security card by fling Form SS-5 so the name and Social Security number will match when the IRS reviews thereturn. If they don’t there will be problems.

Newlyweds should also sit down and go over their finances very carefully. A good budget helps you cut spending, and that could allow you to contribute more to retirement accounts like 401(k)s and IRAs, allowing you bigger tax deductions. You also should consult one another on matters like selling investments, so you can net out gains and losses to minimize capital gains tax.

And if either or both of you are self-employed or have a lot of investment income, be sure to file quarterly estimated tax payments. That way you’ll avoid interest and penalties, or a desperate scramble to come up with cash to pay tax due when you file your next return.