Tax to-do's after saying 'I do'
Saturday, July 07, 2007
Thousands of superstitious couples will walk down the aisle today, Saturday, July 7, 2007, hoping that the triple seven date will bring them some added marital luck.
And although he wasn't invited
Bob D. Scharin, RIA Senior Tax Analyst from Thomson Tax & Accounting, advises newlyweds to make sure they are aware of how their new married status can affect many tax and financial decisions.
"This will help guide you to smart choices that will have the best possible effect on your bottom line next April," says Scharin. To that end, here are five tax areas that any new mister and missus should consider as soon as they return from their honeymoon.
Change your withholding: If you both work, you'll probably need to adjust your payroll withholding to reflect the two paychecks. The earlier you examine your withholding, the less likely you will have an unpleasant surprise at the end of the year.
Examine your IRA: Your new joint income amount also could affect your retirement contributions, for both a deductible traditional IRA and a tax-free Roth account. Income limits apply to both types of plans; details are in IRS Publication 590.
If you made a 2007 contribution before your vows, double check to ensure you're still eligible. If you haven't contributed, Scharin says to look at the possibility of whether you need to move your plan to a more favorable account.
Decide which deduction: Although it is still month before you get to file your first tax return together, you need to be aware that your new filing status could affect your tax deductions. You might find you'll now get a more favorable tax result by switching from the standard deduction ($10,700 in 2007 for married filing jointly taxpayers) to itemizing.
"Suppose you have $4,000 of deductible expenses and your spouse's deductions total $8,000," says Scharin. "Now that you're married, you will need to itemize, so be sure to retain receipts for deductible items."
Conversely, if you have $7,000 in deductions and your spouse has $3,000, you won't be filling out a Schedule A this tax year.
Update your Flexible Spending Account: Marriage is a change in family
circumstances that enables you to make mid-year changes to this tax-favored company benefit plans. "If you, but not your spouse, are
covered by a health FSA, you should consider increasing your
contributions to cover your spouse's out-of-pocket medical costs for
the rest of the year," says Scharin.
Reassess your residence options: If you or your new better half owned a home prior to the wedding and one of you is moving into it, that change of address could affect possible taxes on the future sale of the residence.
The home-sale exclusion is a great tax break. Generally, a single homeowner avoids taxes on $250,000 in profit; a married couple gets double that amount. But to take full advantage of the tax break, you have to meet its residency requirements. Specifically, you both must live in the home two out of the last five years.
Scharin's advises that if one of you owns a home that has appreciated more than $250,000 and the other person is moving in, wait until you have both been living there for at least two years. Then you'll get the full $500,000 tax exclusion on your sale profit.
The good thing about some of these marriage-inspired tax tasks is that you don't have to worry about them immediately. Just be aware of them and then take advantage when the time comes.
Now, about those thank-you notes … .
Other lucky wedding days: If you weren't able to secure a 7/7/07 date for your big day, don't despair. If you're willing to wait, you can pledge your troth next June, the traditional wedding month, on the wonderfully sequential date of 6/7/08.
Or, a couple of months later, there's always 8/8/08. It falls on a Friday and eights are considered good luck in Chinese culture. Just make sure there are no sports fans in your wedding party or they might not forgive you for making them miss the opening of the Summer Olympics in Beijing at 8:08 p.m. that day.
Conversely, there are some dates couples try to avoid, such as those that involve the number 13. Find more on unlucky wedding dates here.
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