Taxes, when married, can seem difficult but they’re not–tune in to learn more. It’s Tuesday, so that means it’s a Tax Tip Tuesday. Valentine’s Day is not that far off, so I figured what could be more romantic than a discussion about taxes. Maybe not actually the most romantic discussion, but marital strife around finances is one of the leading causes of divorce. So, even though it might not seem romantic, it could be super beneficial to your relationship if you actually go ahead and figure out how you want to file your taxes.
The IRS, I guess, is a little bit traditional. Now, I know people can be in all sorts of different kinds of relationships these days, but they really want to know, are you married, or are you not married? It’s not real shades of gray with the IRS, and the reality is, they only care what you are on December 31st. If you go and get married on December 30th, you can claim to be married and file as married for the entire year. Actually, you have to. You have to either file a married joint or a married file separately, which leads us to the next topic. Right? Should you file jointly, or should you file separately? I’m often surprised at how many people don’t understand that when you’re married, that you file, generally speaking, one tax return. All right? That’s for our married file joint folks.
Then the next question is obviously, “Well, which one should I do?” All right. People wonder, “Am I losing money? Am I saving the money? Why would I go about doing it?” And there’s a couple of reasons. Number one, if you file married joint, you are each 100% responsible for all of the taxes. Right? And that math doesn’t really sound like it makes sense, but what they mean by that is, if you’re a married couple, and say you generate $10,000 of taxes, and maybe only one of you works. Whose taxes is it? Well, the 10,000 actually belongs to both of you and each of you.
So if the spouse that works pays the tax, okay, great. If the spouse that doesn’t work needs to pay the tax, well, that might be harder for them to come up with the money. But in the eyes of the IRS, they don’t care. One of you, or the both of you, is going to come up with that money. Now, when you file married separately, which is the next version of married filing taxes, it’s a little bit different. Right? You each are going to end up filing your own tax return, and you’re each only responsible for your own taxes. All right? And that kind of sounds like it’s a little bit fairer, but there’s a lot of other quirks to filing married separately. For example, if one of you itemizes their taxes, you both have to itemize, and if one of you takes the standard deduction, you both have to take the standard deduction. So there’s not like a mix and match for certain things like that.
Also, the tax rates tend to be higher. So while it sounds great, like, “All right, I don’t have to be responsible for my spouse’s taxes. They can deal with their own taxes.” You might, overall, as a family unit, actually ended up paying much more in taxes. You have to weigh the pros and cons of each. I will tell you guys that about 99% of the married couples that I do taxes for end up filing married joint. There are very few times that it works out to their benefit to filing separately. And if you’re in a completely not official relationship, but maybe you’ve been living together for two years and whatnot, well, you guys, you’re filing separately. I’m sorry to tell you unless you want to go get married, and it may or may not be for the better, at least for your taxes. You would have to do a little bit of tax planning and see. So, happy Valentine’s Day. Keep it romantic. Talk about your finances. Talk about your taxes. We’ll see you next time.