Marital Status & Your Taxes

Summer is the choice season for weddings. 35% of weddings occur between June and August.  After the honeymoon newlyweds have a lot to think about and taxes might not be on the list. However, there is good reason for a new couple to consider how the nuptials may affect their tax situation.

Under federal law, if you are legally married you have the choice of filling in one of two ways:  Married Filing Joint or Married Filing Separately.  For Federal tax purposes, you are considered married if on the last day of the year you are married and living together. This filing status includes common law marriages that are recognized in the state where you now live or in the state where the common law marriage began. Even if you are living apart, on the last day of the year you are considered married if there is no legal decree of divorce or separate maintenance. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year.

If you should choose to file as Married Filing Separately (MFS) there are a few  limitations that you may wish to consider:

Married Filing Separately (MFS) taxpayers may not be eligible to claim the following tax benefits:

• Deductions of tuition and fees
• Deduction of student loan interest
• Tax-free exclusions of US bond interest
• Tax-free exclusions of Social Security Benefits
• Credit for the Elderly and Disabled
• Child and Dependent Care Credit
• Earned Income Credit
• Education Credits

Other penalties/restrictions:

• When filing separately taxpayers have a much lower income phase-out range for IRA deductions.
• Both spouses must claim the standard deduction, or both must itemize their deductions. You cannot claim the standard deduction if the your spouse is itemizing.
• This filing status generally pays more in tax of all the filing statuses.

Filing status determines which standard deduction amount and which tax rates are used when calculating a person’s federal income tax for the year. For 2017, a person who files as married filing separately can claim a standard deduction amount of $6,350.

Living in a community property state has its effects upon your taxes as well.  Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you file separate returns in a community property state, you and your spouse must each report half of your combined community income and deductions in addition to your separate income and deductions. Each of you are required to complete and attach Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Be sure to list only your share of the income and deductions on the appropriate lines of your separate tax returns (wages, interest, dividends, etc.).

Should you have questions regarding your taxes or your filing status, Next Level Accounting & Tax will gladly give assistance.  Our tax specialists are available by phone or email. Contact us today for a no cost, no obligation discussion of your tax status.