A couple years ago, we were talking all about the big 1099-K reporting change. Remember the one that dropped the reporting threshold from 20K to 600 dollars for all third-party platform payments? Yeah, that was a big jump… and a worrisome one too.
Plus, the execution of it brought up a lot of questions, like… If I sell my grandmother’s antique furniture for 700 dollars and get a Cash App payment for it, does that mean I would receive a 1099-K form to fill out for tax time?
Well, after two IRS delays on implementing that change, a Congressional committee decided recently to try to repeal it. That doesn’t mean it’s a done deal yet, but it’s one step closer to clarity, at least.
Now, what that doesn’t mean is that you don’t have to report income. Because that’s still a must with the IRS—yes, even the money you make on grandma’s antique furniture. Though there are some strategies for reducing that taxable requirement: here’s a good article on that particular subject.
Speaking of good tax strategies…
While most of us are just thinking about how marriage affects our personal lives and Netflix recommendations—the reality is that it impacts our tax life too. While this seems like an obvious statement, it’s surprising the number of my North Colorado Springs clients I’ve helped who never ever think about their taxes when they get married. In the words of Pretty Woman:
So, if you’re already a newlywed (or will be one soon), this is a note you’ll want to pay attention to today so you don’t make the same mistake.
Married Couple Tax Deductions & To-Do’s for Colorado Springs Newlyweds
“The secret of happiness is not finding a perfect partner, but learning to live with an imperfect one.” – Winston Churchill
Now that you’re living in the post “I do” bliss and have started calling each other “husband” and “wife” (or any number of other cute nicknames), it’s time to talk about something that might not have come up in your vows: taxes.
Take it from me, your favorite Colorado Springs tax pro—who has seen more than one newlywed couple shocked by their post-honeymoon tax bill—getting this taken care of ASAP is going to make a big difference (not to mention give you access to some great married couple tax deductions).
Let me first give you a picture of how things can change:
The Marriage Bonus: Picture Mia and Noah, a lovely newlywed couple. Mia’s a teacher, and Noah’s a high-earning tech professional. Before their wedding, Emily was taxed in a relatively low bracket, and John, well, he was in a much higher tax bracket. After they tied the knot, filing jointly allowed John’s high income to dip into Emily’s lower tax bracket. Which meant savings.
This is what we call a marriage tax bonus. By filing together, they shaved a few percentage points off John’s income and saved hundreds on their taxes. While the marriage bonus can be beneficial for some couples, it may not be advantageous for all. There are other factors such as your specific income levels, your itemized deductions, along with other tax considerations that can influence whether filing jointly will result in tax savings for you.
The Marriage Penalty: Maybe you’re more like Charles and Lisa. Charles is a software engineer and earns 102K per year, while Lisa, a corporate lawyer, earns 123K. As single filers, they fall into the 24 percent tax bracket and would each owe 13.3K. However, if they were to marry and file jointly, their combined income of 225K would push them into the 32 percent tax bracket, resulting in a total tax liability of 59.4K. That means they would end up owing the IRS 32.7K.
Sometimes, the IRS doesn’t double the tax brackets for married couples, which is when the penalty occurs. So, if you and your spouse are both high earners, now will be the time to start examining what you’ll owe and make adjustments accordingly.
So, with the marriage bonus and penalty in mind, let’s look at your tax priorities as a newlywed couple. These are things you’ll want to consider and take care of as soon as possible:
- Update your W-4s. You have 10 days after your wedding to update your W-4 to adjust your tax withholding. To avoid a surprising tax bill next April, use the IRS Tax Withholding Estimator to figure out how much should be withheld.
- Update your address and name with the IRS and the Social Security Administration.
- Decide your filing status. Filing jointly is generally the preferred route for most couples because it opens the door to more credits and deductions (more on that below). Filing separately can be beneficial for those wanting to stay in a lower tax bracket or who have large itemized deductions.
Besides what you have to do legally to make sure you aren’t stuck paying more taxes than you should, there are some married couple tax deductions available that could also help lower your tax burden. Some of these apply only if your filing status is married filing jointly (MFJ). Others will have limitations if you choose married filing separately (MFS).
- Claiming the standard deduction: As newlyweds, you’ll have a higher standard deduction than when you were single. This means you can deduct a larger portion of your income without itemizing deductions. (MFJ only)
- If you decide to have kids or have them already? You could be eligible for the Child Tax Credit, the Child and Dependent Care Credit, and the Earned Income Tax Credit. (MFJ only)
- Going back to school? There’s the American Opportunity Credit and the Lifetime Learning Credit. (MFJ only)
- Adding to your retirement? The Saver’s Credit could be applied. (MFJ only)
- Building your life together? There’s the Mortgage Interest Deduction and the Property Tax Deduction. (Limits for MFS)
- Other possible married couple tax deductions are available for charitable contributions, medical expenses, and state and local taxes. (Limits for MFS)
Marriage is a beautiful thing and congratulations on yours if you were recently married. If you’re in the engaged crowd, take some of these things to heart now so tax season doesn’t end up being the “for worse” part of your vows.
With a little planning, you can keep your finances as blissful as your wedding day and take advantage of the married couple tax deductions that are just one of the many bonuses of saying “I do.”
Want help with some of these newlywed tax moves, I’m right here:
719-260-0320
Be blissfully married and hold onto your money,
Susan Wilklow