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Tax Tips for Recently Married Taxpayers

Few changes in life affect your taxes as significantly as beginning or ending a marriage. These Q&As may be helpful if you have been recently married or divorced. In most cases, you pay less tax by filing jointly. You do not qualify for certain tax breaks, or your tax breaks may be limited, if you use the Married Filing Separately filing status. For example, you cannot take education credits, the student loan interest deduction, or the rental real estate loss allowance if you lived together and file separately. Also, you cannot take the Child and Dependent Care Credit or the Adoption Credit if you file separately, unless you lived apart for the last six months of the year.

Tax Tips for Recently Married Taxpayers

Married Filing Separately (MFS) taxpayers are only responsible for their income and taxes (and not for a spouse), but may not be eligible to claim the following tax benefits:

  • Tuition and fees deduction
  • Student loan interest deduction
  • Tax-free exclusion of US bond interest
  • Tax-free exclusion of Social Security Benefits
  • Credit for the Elderly and Disabled
  • Child and Dependent Care Credit
  • Earned Income Credit
  • Education Credits

 

Other drawbacks of Married 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. One spouse cannot claim the standard deduction if the other is itemizing.
  • This filing status generally pays the most tax of all the filing statuses.

If you have recently gotten married or plan to get married in the near future, the IRS has some tips to help you avoid stress at tax time.

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  1. Notify the Social Security Administration: Report any name change to the Social Security Administration, so your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security card at your local SSA office. The form is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.
  2. Notify the IRS: If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 below or order it by calling 800–TAX–FORM (800–829–3676).
  3. Notify the U.S. Postal Service: You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
  4. Notify Your Employer: Report any name and address changes to your employer(s) to ensure receipt of your Form W-2, Wage and Tax Statement after the end of the year.
  5. Check Your Withholding: If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee’s Withholding Allowance Certificate you can print out and give it to your employer so they can withhold the correct amount from your pay.

Bottom line: planning for your wedding may be over, but don’t forget about planning for the tax-related changes that marriage brings. More information about changing your name, address and income tax withholding is available on IRS.gov. IRS forms and publications can be obtained from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

 

Additional IRS Links on the Tax Consequences of Getting Married:

 

YouTube Video on Getting Married and Taxes:

Seven Facts to Help You Understand the Alternative Minimum Tax AMT

Individuals with a higher income may be subject to the Alternative Minimum Tax. Under the tax law, certain tax benefits can significantly reduce a taxpayer’s regular tax amount. The AMT sets a limit on those benefits. If the tax benefits would reduce total tax below the AMT limit, the taxpayer must pay the higher Alternative Minimum Tax amount. The AMT system comes with a completely different set of rates and deduction rules. People pay it only if their AMT tax amount is higher than their traditional taxes. Translation: If you’re paying the AMT, you are by definition paying higher taxes.

The fiscal cliff deal also raised tax rates for higher-income earners. Couples making more than $450,000 a year and singles earning $400,000 or more now face a “marginal rate” of 39.6 percent rather than 35 percent on income above those levels. Because the maximum AMT rate is 28 percent, these well-to-do taxpayers will typically be charged more on their regular returns so they won’t face the AMT.

 

  1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. The Alternative Minimum Tax attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
  2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
  3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
  4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
  5. The AMT exemption amounts are set by law for each filing status.
  6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
    • $69,950 for a married couple filing a joint return and qualifying widows and widowers
    • $46,200 for singles and heads of household
    • $34,975 for a married person filing separately
  7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Even if you’ve been paying the reviled alternative minimum tax known as the AMT for years, your status can change. It all hinges on how much you make, where your money comes from and the deductions you can claim.

 

Seven Facts to Help You Understand the Alternative Minimum Tax AMT

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