MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
TAX PLANNING FOR NEWLYWEDS
(June 1, 2006) -- Marriage brings many joys and a few unexpected challenges, such as filing your taxes together. As husband and wife, completing your first tax return well in advance of tax season will go more smoothly by starting now. Here are several items for your income tax to-do list, brought to you by the Virginia Society of CPAs.
A woman who takes her husband's surname upon marriage should notify the Social Security Administration and her employer of the change. This helps to ensure that earnings are properly reported and credited. To get a Social Security card printed with your new name, complete Form SS-5, Application for a Social Security Card. The application is available on the SSA website at www.ssa.gov or by calling (800) 772-1213.
When your marriage involves a move, you should complete IRS Form 8822, Change of Address. You can find this form on the IRS website at www.irs.gov or you can request a copy by calling (800) 829-3676. Be sure to notify the U.S. Postal Service as well.
Newlyweds should also submit new W-4 forms with their employers to ensure that withholding from their paychecks reflects their new marital status.
Whether you got married on January 1, December 31 or anytime in between, as far as the IRS is concerned, you've been married all year and must file as a married taxpayer. You need to consider whether filing jointly or separately is better for your personal financial situation.
Choosing the best filing status is a major tax decision for newlyweds. When you file jointly, you combine your income, deductions, and credits, all on one income tax form. Generally -- but not always -- filing a joint return results in the lowest tax bill. Keep in mind that when you file a joint return, each spouse is personally liable for everything on the return.
Filing separately may be a better choice if one spouse has high medical expenses or miscellaneous itemized deductions. Since in both cases you can only deduct expenses in excess of a specific threshold (7.5 percent of adjusted gross income for medical expenses and 2 percent for miscellaneous deductions), your combined income on a joint return could make it more difficult to qualify.
On the other hand, keep in mind that some tax credits and deductions are reduced or eliminated for married couples filing separately. For example, separate filers can't take advantage of education tax credits or deduct student loan interest. Figuring your taxes both ways is the best way to determine which filing status results in the lowest tax bill.
Be prepared. If you're married and plan to file jointly, it's possible that you will be in a higher tax bracket based on you and your spouse's combined income. For a married couple filing jointly in 2006, the rate on taxable income between $61,300 and $123,700 is 25 percent.
Individual Retirement Account (IRA) deductions
A newly married taxpayer who was able to deduct IRA contributions as a single filer may find that he/she no longer qualifies. If your new spouse is covered by a retirement plan at work, you may be entitled to only a partial deduction or no deduction at all. Your ability to claim a deduction is determined by your filing status, your combined adjusted gross income, and whether or not your spouse is covered by a qualified employer plan.
Keep in mind that as you face new financial and tax challenges together as a married couple, a CPA can help you prepare for a lifetime of effective tax planning. Make an appointment now while you have time to implement tax-saving strategies for 2006.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
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