Tax season is now over and wedding season is underway. So what if you're recently married (or soon to be married) and you're already thinking about taxes for next year? Do you know if you want to file together or separately? While filing jointly is commonly considered the best way to go, there are a few things to think about before you choose. Let's talk about your options so you can make an informed decision.
Married Filing Jointly
If you're newly married, then chances are you may want to do everything jointly. And there absolutely are benefits to filing your taxes jointly, but remember it doesn't mean you have to combine your finances to do so. There are some factors that you'll benefit from if you file together.
You can contribute to an individual retirement account, even if you don't have taxable income.
Typically an IRA can only be contributed to by an individual who has taxable income. This is not so for married couples filing jointly. As long as one of you is eligible for an IRA, then both of you can reap the benefits of this. You can also contribute twice the amount yearly than you'd be able to contribute as a single individual. (Note, there may be income restrictions on this, depending on your combined annual income. Talk to your financial adviser to see if this affects you.)
You can benefit from your spouse's tax deductions.
Don't have student loans, but your spouse does? By filing jointly that deduction is factored into your joint return. The same goes with charitable tax deductions and you can even deduct more than you could if you filed separately. Finally, if your spouse has medical bills or other such expenses, you could likely claim those together, when you wouldn't be able to claim them if you were filing separately.
You are exempt from estate taxes and gift taxes.
In an effort to prevent the very wealthy from evading taxes by giving large gifts to family members and loved ones, the government charges estate and gift taxes. However, if your spouse is wealthy and passes away, you won't be charged estate taxes if you filed taxes jointly. The same goes with gifts that your spouse gives.
Wild Card: Tax Brackets
This one can go either way. Until just a few years ago, many married couples filing jointly were dinged on taxes if one of them placed the other into a higher tax bracket. However, Congress has made changes that increased the standard deduction for married couples to lessen this blow. It might be best to talk to a financial adviser before making the decision on this one -- but if your spouse earns a lot less than you, then that could place you in a lower tax bracket, and vice versa.
Married Filing Separately
What about filing separately? There are many reasons a couple may decide to go this route, but here are a few to consider:
You won't be liable for your spouse's tax mistakes and financial woes.
One clear benefit to filing separately is that, if your spouse makes a mistake on his or her taxes, you won't be liable for this. The same goes for your spouse's financial woes. If your spouse is facing garnished wages and you filed jointly, then you could end up not getting a refund. But if you filed separately, then you're not at risk.