As you plan to start your new life together there might be a valid confusion of how Uncle Sam will view you and your partners taxes with this new stage in your lives. Remember to always consult with a tax expert and do your own research, as each situation can be different – but today we can give you a basic rundown!
What Does Filing Jointly Mean?
Married filing jointly is a tax status. It’s like what you did before you got married when you filed as a single person, except now you file with your spouse. When you file jointly, you and your spouse combine your incomes and send that information to the IRS (and hope for the best). And it does not matter how long you’ve been married, either. It doesn’t matter if you had a June wedding or celebrated in a winter wonderland. As long as you tied the knot before the end of the year, you can take advantage of the benefits of filing jointly.
Potential Benefits of Filing Jointly
Oh, yes, there can be benefits when you file jointly with your spouse. Here are some tax deductions that you can claim that you couldn’t claim when you were single and cannot claim if you decide to file separately:
- Hope and Lifetime Learning Credits: This credit is given to students for tuition and related educational expenses. If you or your spouse are a qualified student, you may be able to claim this credit on your taxes (IRS, 2021).
- Home Sale Exclusion: If you and your spouse want to sell a home and you have lived in it for two of the past five years, $500,000 of gains after the sale of the home can be excluded from your income taxes (IRS, 2021).
- Child Care Credit: The child tax credit allows a married couple that files jointly to earn a yearly income of up to $400,000 before they are no longer eligible to claim the child tax credit. If you and your spouse choose to file separately, then the annual income threshold is cut in half (IRS, 2021).
- Adoption Credit: If you and your spouse have adopted a child, you may be eligible for a credit on your taxes (IRS, 2021).
- Two Times the Standard Deduction: Couples that file married filing jointly can enjoy a large tax deduction. In fact, you and your spouse can claim double the standard deduction.
- IRA Accounts: If you are in a marriage where only one partner works, the other partner can enjoy the tax benefits that come from investing in an IRA account. The spouse that is not working can choose to contribute throughout the year and claim the deductions on their taxes.
- No Gift Tax: After you get married, you can give as much money as you want to your spouse without worrying about paying a gift tax to the IRS.
Clearly, there are various potential benefits to filing jointly now that you are married. But just like most things in life, there is a potential downside to filing jointly.
Potential Disadvantages of Filing Jointly
The marriage penalty. That sounds sinister. It almost sounds like a warning to all fiancés across the land to halt before they make a mistake. Before things get too scary, let’s talk about what that means. The marriage penalty describes the pattern that shows sometimes spouses end up paying more money in federal income taxes after they get married than they did when they were single. Why can’t the IRS just be happy for you, right?
Don’t fret too much. The tax laws change a lot, and sometimes even change for the better. In 2018, for example, the IRS adjusted tax brackets increasing the size of the married filing jointly tax bracket. Now, the marriage penalty is all but eliminated. Just be on the lookout if you and your spouse are high earners because you may still face some of the wrath of the marriage penalty (H&R Block, 2021).
Prenups and Filing Taxes
By now, you may be wondering if having a prenup can help with any of these tax issues. Yes, a prenup can help you in many ways when it comes to your taxes. You and your future spouse can draft a prenuptial agreement to include categories like filing status, determine tax liability before the marriage, and decide about tax liability after the marriage.
While you and your fiancé are drafting your prenup, you can discuss how you’d like to file your taxes and then put that into the agreement. While there are a lot of benefits to filing jointly, you are not required to. You and your partner can also agree to file separately. Just keep in mind the costs and benefits of being married and filing your taxes separately and how to make your documents work for you!
A prenuptial agreement is also a great way to limit each spouse’s responsibility for the other spouse’s tax obligations that they accrued before the marriage. That’s the great thing about having a prenup, it can protect you from the consequences of your spouse’s actions that happened before the marriage if things don’t work out.
You and your future spouse can also agree on who is responsible for paying any tax debt after the marriage. Any debt that you and your spouse ran up during the marriage must be paid, even if you get a divorce. A big part of divorce settlements is negotiating about who pays what marital debt. . A well-drafted prenup can state who is responsible for paying the tax debt. If you decide on these kinds of issues early on, it helps you avoid the stress of deciding who should pay the tax while you are also handling the stress of a divorce.
Where Can I Get a Prenup?
Our mission at HelloPrenup is to help you and your fiancé get have the most peace of mind when entering into this new partnership. We know that talking to an attorney can be intimidating, going to a stranger to draft a prenup can feel impersonal, and on top of that, it’s expensive! HelloPrenup cuts through those concerns. With HelloPrenup, you and your partner can empower yourself to draft a prenuptial agreement that you can feel good about. Our platform helps you draft a prenup in a matter of hours, so you can get back to what matters most! Ready to get started?
Julia Rodgers is HelloPrenup’s CEO and Co-Founder. She is a Massachusetts family law attorney and true believer in the value of prenuptial agreements. HelloPrenup was created with the goal of automating the prenup process, making it more collaborative, time efficient and cost effective. Julia believes that a healthy marriage is one in which couples can openly communicate about finances and life goals. You can read more about us here Questions? Reach out to Julia directly at [email protected].