Going from a single person to married couple changes your life dramatically. It affects your living situation, finances and even your taxes. If you were married by December 31st, for tax purposes, you’re considered married for the entire year. Here’s what newly married couples need to know about their taxes.
Report a change of address if you’ve recently moved
Sometimes moving in together requires getting a bigger place. When that happens, don’t forget to inform your employer of your new address. At the end of the year when it’s time to send out those W-2’s, you want to make sure yours goes to the right address. It’s also a good idea to update your address with the USPS so you don’t miss any important bills during your move. Additionally, you may want to submit a change of address with the IRS using Form 8822.
Update your name with the Social Security Administration
Once you decide to start using your married name, be sure to notify the Social Security Administration. You need to keep them in the loop, so your new name matches the SSN they have on file for you. If you try to use your married name on your tax return without informing them of the change, your return will be rejected. There’s no overnight fix either. It can take weeks to be processed which obviously slows down your refund. To report your new name, you must complete and submit Form SS-5 to your local Social Security office.
The standard deduction is higher for married couples filing together
The easiest way to lower your tax bill is to choose the standard deduction versus itemizing. For the 2020 tax year, the standard deduction for a married couple filing a joint return is $24,800. If you prefer not to file with your spouse, the standard deduction is reduced to only $12,400.
A stay-at-home parent can save for retirement with a spousal IRA
Being a stay-at-home mom or dad doesn’t mean you can’t save for retirement. Normally, you aren’t allowed to contribute to an IRA unless you earned income, but the rules are different for married couples. If your spouse works and you file a joint tax return, your spouse can make IRA contributions on your behalf. The funds belong solely to you, it’s not a joint account. The IRA contribution limit for 2020 is $6,000 ($7,000 if you’re aged 50 or older).
More of your profit may be tax-free when you sell your home
When you sell your home, a portion of your profit may be tax-free if the place was your primary residence for two of the last five years. The time doesn’t have to be consecutive. Married couples have the clear advantage over singles when it comes to how much profit can be excluded. Singles can exclude up $250,000 of profit, meanwhile married couples filing a joint return can exclude up to $500,000.
There are times when you’re better off filing separately
Most of the time it’s more beneficial for married couples to file together, but there are some exceptions to the rule. If you can’t trust your partner to be completely honest on their return, don’t file together. When you file jointly, both parties are responsible for any information provided. So, if your partner gets caught in a lie, you’ll be in trouble too. Also, if your spouse owes back taxes, is behind on child support payments or has defaulted on federal student loans, you may be better off filing separate because the IRS can seize your refund.