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Marriage and taxes: A happy union?

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in Small Business Tax

Are you planning to get married in the near future? Of course, the decision about when to tie the knot should not revolve solely around taxes, but it may be a consideration.

Strategy: Assess your personal situation. If it makes sense, you might get hitched before the end of the year, especially if the tax difference is substantial.

Conversely, you and your betrothed may be better off tax-wise waiting until next year.

Here’s the whole story: Your marital status affects the way you report income on your personal return. If you’re not married, you use the tax brackets in effect for single taxpayers. If you are legally married as of year end, you can file a joint return with your spouse (or file separately as married taxpayers).

For instance, if you get married on New Year’s Eve this year, you can file a joint return for 2019. But you still must file as single taxpayers for the 2019 tax year if the wedding takes place on New Year’s Day.

Should you marry sooner rather than later or vice versa? It depends on whether you would benefit from the “marriage bonus” or get hit with the “marriage penalty.”

Due to the structure of the tax brackets, taxpayers often benefit when one spouse has a disproportionately higher income than the other spouse. Usually, the combined income won’t push the couple into a higher tax bracket, so they benefit from the wider income ranges for joint filers.

However, when each spouse has roughly the same amount of taxable income, the marriage penalty can apply. When their income is combined, the couple is pushed into a higher tax bracket. This occurs more often for high-income couples because the tax brackets for the higher tax rates aren’t twice as wide as the brackets for single filers, like they are for low-income taxpayers.

In addition, there are numerous other factors to consider, including any deductions the couple would be entitled to. For example, a couple may benefit from using married filing separate status if a low-income spouse has significant medical expenses. This relates to the medical expense deduction threshold of 10% of adjusted gross income (AGI) for 2019. (The threshold is increasing from 7.5% of AGI in 2018.)

Tip: There’s no definitive “wrong” or “right” answer. Crunch the numbers to see where you stand.

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