Love and Taxes
If you just can’t wait, we understand. But, for those who are financial planners at heart, we have a few tax facts you might find useful.
When to say “I do.”
If your taxpayer status changes from single to married any time during the year (even if it’s December 31st), then your filing status for that year you will relegated a married status for the entire year. Now, if you file as married, and one spouse’s income is low or nil, then you probably will save tax dollars. But, if each of your incomes is fairly high and relatively equal, then you would probably incur a higher tax liability since tax computation is based on total (combined) income. If you wait, you might just be able to finance a honeymoon to Hawaii.
A Penalty For You?
If you file under a married status, your combined incomes might push you into a higher tax bracket in which your tax rate would be higher. This means that you would pay more in taxes if you file together than you would if you filed separately. Let’s say you and you spouse each make $26,250 a year. This puts each of you in the 15% tax bracket if you filed singly. This would bring a tax tab of $3,945 each, for a total of $7,890. Simple. However, if you filed jointly, your combined income would be $52,500. The 15% bracket cut off is $43,850 so that much would still be taxed at 15%. But the remainder of $8,650 (the amount above $43,850) is in the 28% tax bracket. So your total tax liability would be $9,021.50. This is an extra $1,131 that I am sure you could put to better use. Also note that with a higher combined income, you could lose such tax breaks as child credit or college costs or itemized deduction. As if being married itself wasn’t difficult enough already.
In all fairness to Congress’s tax making, the main reason for all the difficulties in solving this married/single tax status stuff is that many more married couples enjoy the tax benefits rather than the tax liabilities from their married tax status. So, think first before you say “I do” (good advice regardless of income).