So you just got married – now what?
Congratulations! It is such an exciting time of life. College parties turn into Sunday morning brunches, late Friday nights out turn into coffee dates on Saturday and suddenly everyone around you is getting married, sitting the CPA Exam and having children. Now it is your turn – so what should you be thinking about and what are some of the taxation implications. You are a CPA candidate, so this is right up your alley.
Should you file your taxes jointly?
If your finances are simple, you will more than likely file jointly. This will usually result in a ‘marriage bonus’ – a smaller tax bill – but may in some circumstances result in a higher tax bill – a tax penalty. It’s important to sit down and review your finances together.
- Do either of you own property?
- Do either of you receive an inheritance, trust distributions, or own investments?
- Are you going to be unemployed and a full-time CPA candidate while studying for the CPA Exam while your new spouse works?
These factors, among others, can impact on the decision to file joint or separately. Your marital status as of December 31st will be your status for the entire tax year.
Check your tax withholdings
Often married couples who file joint returns can claim an additional personal exemption, resulting in less taxes being withheld by an employer. However, sometimes your combined income may place you in a higher tax bracket. Check that the correct amount of tax is being withheld from your paychecks by using the withholding calculator to avoid any surprises. If necessary, fill out a new form W-4 and give it to your employer.
Should you itemize?
After assessing your combined situation, it may be worth considering whether there are enough potential deductions to itemize on your tax return rather than taking the standard deduction. However, the Tax Cuts and Jobs Act which is effective in 2018 for returns filed from 2019 almost doubled standard deductions for all filing statuses. It's expected that the number of people who benefit from itemization will decrease drastically this year.
Have you changed your name and/or address?
Prior to filing your first tax return with a new name, you must notify the Social Security Administration of the name change. The name on your tax return must match your name in the Social Security Administration’s records. It is best to do this as soon as you have your Marriage Certificate, so that it is one less thing to take care of at tax time, and to reduce the risk of any delays in receiving a refund. You'll need to visit the Social Security Administration office to make the change.
If you combine households after you wed and bid a bachelor/bachelorette pad goodbye, ensure that the IRS is informed of the address change by using Form 8822.
Looking towards the future
Are you planning on buying your first home together? Consider the implications of the Capital Gains Tax main home exclusion and whether you plan to stay and live in the same house at least two years and plan to own the house for at least five years prior to sale.
Do either of you have a 401(k) retirement plan? If not, perhaps now is the time to consider it. The ability to maximize contributions will lower your taxable income – potentially leading to a tax refund or lowering your tax bracket.
Are you planning to expand your family or are you currently expecting? The 2018 tax year brings relief to families in the form of increases to the Child Tax Credit and the retention of the Adoption Credit. As with marital status, the credit is available at the full rate regardless of what day of the year they were born on.
Most importantly (in our opinion), are you marrying a CPA candidate or are you one yourself?
If your fiance or spouse is in the process of studying for the CPA Exam it can be difficult to know what to expect or what to do to support them. It is an incredibly stressful time and, at times, it can be hard to focus. If you're the spouse, try not to make studying for the CPA Exam more difficult on your significant other. Help around the house, relax a little on chores (or hire a housekeeper to assist), prepare for the week’s meals in advance on Sunday, utilize the slow cooker.
When things get tough, think of the future and the many more weekends, holidays, and evenings you will get to spend together – with the bonus of the financial and job security that a spouse with a CPA designation brings.
If you're the CPA candidate, try to schedule time into your week to unplug and relax without your CPA Exam study materials open. Be kind to your spouse and don't let the stress of the exam cause you to be unpleasant and irritated. Keep a clear mind and focus, and the process will be over in 18 months or less!