Wedding planning is often overwhelming but figuring out how marriage will affect a couple’s
tax situation doesn’t have to be. Here are a few things couples should think about as they
embark on this new chapter of their lives.
Let’s Start with Wedding Bliss Basics:
Newlyweds can make tax filing easier by doing a few simple things:
- Report any name change to the Social Security Administration.
- Notify the United States Postal Service, employers, and the IRS of any address change.
To officially change your mailing address with the IRS, taxpayers must complete Form
8822, Change of Address, and mail it to the correct address for their area.
Making these changes as soon as they happen will help make filing their tax return easier.
Now on to the Tax Kiss:
In many situations, wedding bliss leads to a tax kiss in that there are various tax advantages for
married couples. Here a few points to consider as you tie the knot:
- Filing Status – One of the most immediate changes that a wedding brings is a shift in
your filing status. IRS looks at what your marital status is on Dec 31. If you get married
on Feb 1 or December 28, you are considered married for the entire year. For tax
purposes, married couples have the option to file jointly or separately. Choosing the
right filing status can greatly influence your tax liability. Filing jointly often results in
lower overall taxes due to the advantageous tax brackets available for married couples.
It’s crucial to assess both scenarios carefully to determine which option is most
beneficial based on your individual circumstances.
Parents, your dependent’s change in filing status can impact your tax return, too. For
example, I always share the story of my niece who was married on December 28. While
everyone else was excited about planning the wedding, my first thought was that my
niece would file a joint return for the year with her new husband. That meant my sister
would not have be able to claim her as a dependent, which would cost my sister $3,000.
Also, my niece was in her last year of college, so my sister also lost the $2500 education
credit. So besides paying for a wedding, my sister will have a $5,500 ugly tax surprise! - Tax Brackets – Couples must also consider how their combined income will impact their
tax liability. With a wedding, two individual incomes merge, potentially pushing the
couple into a higher tax bracket. Careful planning can help mitigate the potential
increase in tax liability. This could involve adjusting withholdings, exploring deductions,
or contributing more to tax-advantaged retirement accounts. - Deductions & Credits – Believe it or not, some of your wedding expenses may be tax
deductible. (Don’t get too excited here! But every little bit helps.) A few examples
include:
If you’re having your ceremony at a religious site, it might be worth investigating
whether your ceremony fees could qualify for charitable contributions.
If you donate your wedding dress (and even bridesmaids dresses) to charity
after you get married, it is a great way to help another bride marry in style and
increase your tax-deductible charitable contributions.
If you donate your wedding flowers to a hospital, care facilities or other
charitable entity, the donated amount can be added to your charitable
contributions. - Retirement Contributions – Now is the time to reassess retirement accounts,
beneficiary designations, and estate planning documents to ensure they align with the
new marital status and long-term financial goals.
In addition, spousal IRAs are options available to couples who file joint tax returns. They
can maximize a couple’s retirement nest egg even if one spouse doesn’t work. These
plans provide individuals with greater tax-deferred growth that can be used to support
each other in retirement. - Gift Tax Considerations – If parents want to help with the wedding expenses, they
should weigh the pros and cons of either giving the money directly to the bride or
groom to pay for the wedding versus paying for the wedding out of their own pockets.
Here’s a general guideline for each.
If parents pay for the wedding right out of their pockets, this may not be
considered a gift because it could be argued that they are not giving you the
money directly.
If your parents write a check to you for a lump sum to pay for the wedding,
this is most definitely a gift and will be subject to gift tax.
Luckily, the threshold for gift taxes is fairly high, so depending on how much they
contribute, they might be able to get away without paying taxes. Since they can split the
gift between themselves as givers as well as split the gift between you and your future
spouse as receivers, they can give a significant amount before they’ll be hit with the gift
tax.
In 2023, the annual exclusion per taxpayer for gifts is $17,000. This means that if you’re
getting help from two parents — or grandparents, or relatives, or just really good
friends — they could split the costs between them and exclude up to $34,000 in costs. If
they’re fully covering the wedding and your celebration ends up costing more than this,
they’ll only pay taxes on the amount that exceeds the exclusion limit.
Every decision made during this pivotal life event can have long-lasting effects on a couple’s
financial well-being. It’s imperative to approach these decisions with a clear understanding of
the tax implications and, when necessary, seek professional guidance to ensure that their
wedding bliss leads to a tax kiss and not a tax consequence.
For more insightful tax tips, read the Franklin County Free Press for our weekly article. You can
also find other tax tidbits by following Saunders Tax on Facebook and Twitter and by following
me, Bev Stitely, on Linked In.
Saunders Tax & Accounting is open Monday through Thursday from 9 am to 5 pm and is
available online at www.SaundersTax.com. Awarded the Hagerstown Chamber of Commerce
“2023 Small Business of the Year”, we have been providing a Less Taxing Life and More
Prosperous Solutions since 1984!
