Tax Tips Tuesday: Wedding Costs are Fleeting, Marital Finances are Forever
By The Tax Institute At H&R Block
While many soon-to-be married couples focus on wedding costs going up, marital finances often take a backseat. After the wedding, many financial decisions will still need to be made – including which status to use when filing tax returns. Which status they select could make a big difference in their tax liability.
For tax purposes, marital status Dec. 31 determines filing status for the entire year. So, even if they were single most of the year newlyweds must pick a married filing status: married filing jointly or married filing separately. Generally, married taxpayers file a joint return because the added tax benefits, including more favorable tax brackets and higher phase-outs for certain tax credits and deductions, decrease tax liability.
The married filing separately status makes a couple subject to the least favorable tax brackets and ineligible for many valuable tax credits (e.g., education credits), which could lead to higher tax liability. Some couples may be willing to give up these breaks if not blending their finances is important. For instance, the married filing separately status can protect one spouse’s potential tax refund from paying for the other’s tax liability.