Getting married is considered to be one of the most important decisions you take in your life. It not only affects your personal life but even has a major impact on your finances. In case you got married or plan to get married this year, you need to realize that your tax and financial situation will change significantly. Therefore, you need to take necessary steps to make tax savings.
Check Tax Withholding
This is the first step you need to take. It’s important to adjust tax withholding with the employer. After getting married, your tax liability changes on the basis of your spouse’s income. It may be lower or higher, and adjusting withholding ensures you neither underpay nor overpay your taxes. When you think your liability will be lower, you can increase W-4 allowances. This lowers income tax and other withholdings from the paycheck and improves cash flow.
In case your spouse earns an income, especially one that is higher or comparable to yours, Due to this, you may incur a higher tax liability. In fact, your spouse or partner will also need to adjust withholding. You should consult your company’s payroll or HR department to change withholding.
When you’re married, it makes sense to claim some useful itemized deductions. You should ignore filing for standard deductions. Since itemized deductions need you to have receipts for all kinds of tax deductible expenses, they require you to make a little extra effort. However, this extra effort saves a lot of your money in the form of tax savings.
When you near the end of the year, you may even benefit a lot from making an additional mortgage payment, charitable payments or deductions, and taking necessary steps to itemize tax deductions. For instance, if you want to make a charitable donation to a charity, donating money on 31st December brings it to the current year’s books.
Consider Spousal IRA
In case your spouse doesn’t work, it does not mean you can’t contribute to an IRA. The President of Optima Tax Relief, Jesse Stockwell calls this process Spousal IRA. The basic rules are similar to other IRAs. Spousal IRA was created since the Internal Revenue Service didn’t want to penalize out of work or stay-at-home parents. Requirements for filing Spousal IRA are also basic.
In order to file Spousal IRA, you need to be married with a status of standard Married Filing Jointly. It’s mandatory for the working spouse to have earned enough income to make a contribution, and therefore, deduce from her or his income. Other IRA rules and contribution limits are the same.
Joint vs Separate Filing
When you’re married, you even have the great option to file separately or jointly. It’s important to choose a specific status that leads to more tax savings. For a lot of couples, Married Filing Jointly seems to be a better option.
When you file taxes separately, you can lose a good amount of tax credits and deductions. The primary reason is that you need to file jointly to claim various tax benefits, including Earned Income Credit, education tax benefits, Child & Dependent Care Credit.
In order to earn more tax savings, it’s important to plan everything in advance. Marriage is considered one of the most important events in your life. Therefore, it’s important to plan everything prior to your marriage.