From a tax planning perspective, should I get married before the end of 2014 or wait until 2015?
Recently engaged? Congratulations! Weddings are an exciting time full of planning for the big day and your life together beyond the vows. Before deciding on a date for your wedding, you may want to consider the tax implications of your marriage. Since trying to organize the venues, vendors and cost of everything is not stressful enough; I thought I would enlighten you on how your personal taxes could be affected. I realize not everyone could fall in love while volunteering to prepare taxes and think about what their joint tax return would look like. During the engagement and wedding, you will receive a lot of advice and I would like to bestow upon you my wisdom of taxes.
There are two major tax planning items to consider when getting married close to the end of the year - the marriage penalty and marriage bonus. Let me explain the basics of these two terms. First, you need a basic understanding of the tax brackets for single and married filing jointly (see below):
Marriage-penalty:
Here is an example of two people to be married in 2014. Each person has taxable income of $75,000 after their standard deduction of $6,200 and personal exemption of $3,950. This income would cost them individually $14,606 in tax or $29,212 total. If they filed a joint return with each reporting the same income, the tax cost would be $29,247 or $35 more in tax for being married.
Here is an example of two people to be married in 2014 with substantially more income. One person has taxable income of $185,000 and the other $225,000 after their standard deduction of $6,200 and personal exemption of $3,950 (will phase out when married). This income would cost them individually $44,976 and $58,108 in tax or $103,084 total. If they filed a joint return with each reporting the same income and take personal exemption phase-out into consideration, income totals $411,264 the tax cost would be $111,745 or $8,661 more in tax for being married.
Marriage bonus:
Here is an example of two people to be married in 2014. Only one person has taxable income of $150,000 after their standard deduction of $6,200 and personal exemption of $3,950. This income would cost the one individual $35,176 in tax. If they filed a joint return with reporting the same income but being able to use the other spouse’s deduction and exemption of $10,150, lower the taxable income to $139,850 the tax cost would be $26,675 or $8,501 less in tax for being married.
Other items to consider beyond tax bracket changes include; qualified education loan interest deductions, phase-out and rule limits for itemized deductions, alternative minimum tax exemptions, AGI phase-out for deductible contributions to traditional IRAs, 3.8% investment surtax limits, additional 0.9% Medicare tax limits, and various other credits. There are many ways to plan for your future tax liability.
Please contact our office to meet with a professional and discuss your specific situations. Request a complimentary accounting consultation or contact us at (616) 642-9467.
