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Taxes and Marital Status: Federal Filing Considerations

By: Caroline Hill, MBA, Wealth Manager at Sage Rutty & Company, Inc.


Current options

Today, married couples can file as married, either jointly or separately, at both the federal and state level. But does simply checking a different box on your tax forms guarantee a better outcome? Maybe but maybe not.

If you and your spouse earn roughly the same amount of money, filing jointly could bump you into a higher tax bracket. On the contrary, if there is only one primary bread winner, filing jointly may result in paying less taxes. In other words, getting married, could reduce or increase your tax bill to Uncle Sam.*

Domestic partnerships and civil unions

While a handful of states recognize domestic partnerships and civil unions, unfortunately the IRS does not. While these designations may offer some of the same rights and responsibilities available to married couples, it is only at a state level and on a state-by-state basis.

Tax benefits that apply to all

There is no one size fits all solution for married couples grappling with how to file their tax returns; I always advise my clients to consult with their tax advisor to ensure the most efficient method is chosen. However, here is what you can count on assuming both spouses are U.S. citizens:*

  • The ability to transfer an unlimited amount of assets to your spouse, free from federal gift or estate taxes, either during life or at death.

  • The right to leave your spouse property upon your death that doesn’t come with a heavy estate tax bill due to the unlimited marital deduction.

  • More tax-planning options upon inheriting your spouse’s retirement account.

  • The right to open an Individual Retirement Account on your spouse’s earnings record if you are unemployed.

Still the federal tax benefits afforded to same-sex spouses are on par with those of heterosexual spouses. In the eyes of the IRS marriage is marriage, so if you are married or thinking about getting married, you may want to consider taking the time to talk with your tax advisor to see how your marital status might impact your income tax and your financial future as a married couple.

Need additional guidance?

Our team can help

Our firm can help you lay the groundwork for your financial future. We are qualified to assist LGBT couples with key financial issues affecting same-sex spouses and domestic partnerships.

Timing truly is everything.

Timing your marriage to help minimize taxes

Choosing a wedding date that accommodates family, friends, and employers—not to mention the church and reception hall—is a newly engaged couples’ greatest challenge. Perhaps you should consider Uncle Sam when choosing your wedding date.

Tax filing status is determined on December 31 of each year. For tax purposes, that means even if you wait until the last day of the year to walk down the aisle, the IRS will consider you married for that entire year. If there is a notable disparity between your and your partner’s income, then getting married by December 31 could benefit your tax situation. However, if your combined income pushes you into a higher tax bracket, you may want to marry January 1 of the new year to avoid a negative impact on your current-year tax bill.*

Still, income is not the only factor that influences whether marriage could impact your tax situation. Discussing questions such as who incurs deductible expenses, who can claim children as dependents, and what tax preferences you might qualify for can also help you gauge the potential effects of marriage on your tax situation—and help you and your partner to determine the best time to exchange vows.

*Our firm does not provide legal or tax advice

*source: US Tax Code

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