West Tax|Western Tax and financial Information

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Today let us learn “how getting married affects your taxes”. When you get married, your tax situation changes, either for better or for worse, and there are decisions to make regarding how the two of you should file. Here are the most important things to know.

First, married at year-end means married for the whole year. Your marital status on December 31 determines yyour tax filing options for the entire year. If you’re married at year-end, you have only two choices: [1] file jointly with your new spouse, or; [2] use married filing separate status for a separate return based on your income and your deductions and credits. Most married couples file jointly. It’s because it is simpler. You have to file only one form 1040, and you don’t have to worry about figuring out which income, deduction and tax credit  items belong to which spouse. Other things being equal, simple is good. Besides, it’s often cheaper too. That’s because using married-filing-separate status makes you ineligible for some potentially valuable tax breaks, such as the child-care credit and the two higher-education credits. Therefore, filing two separate returns often results in a bigger combined tax bill than filing one joint return.

Second, if you file jointly, you’re on the hook for your spouse’s tax misdeeds. Despite the preceding advantages, filing jointly is not a no-brainer for one big reason. For any year that you file a joint return, you’re generally jointly and severally liable for any federal income tax underpayments and penalties, caused by your new spouse’s unintentional tax errors or omissions or deliberate tax misdeeds. Joint and several liability means the IRS can come after you for tax underpayments and penalties, if collecting from your spouse proves to be difficult or impossible. They can even come after you long after you’ve become divorced. However, if you can prove you didn’t know anything about your spouse’s tax failings, had no reason to know and did not personally benefit, then you can try to claim an exemption from the joint-and-several-liability rule under the so-called innocent spouse provisions. This is easier said than done.

(continued to How Getting Married Affects Your Taxes (part 2))

continued from (standard, or itemized tax deduction? (part 1)

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So if all those receipts you stashed last year, in the hopes of turning them into tax breaks add up to less than your standard deduction amount, throw them away. There’s no need to waste your time filling out extra forms. But individuals who spend a lot on medical care, mortgagae interest, state and local taxes, charitable contributions or a variety of miscellaneous items generally are better off itemizing. Even purchases might help out some fillers at tax time this year, thanks to the deduction for state sales tax paid. When all of this expenditures exceed the standard deduction, you’ll save on your taxes by filling out schedule “A” along with your 1040.

Now let’s see what itemizing ground rules mean. Last 2010, taxpayers who plan to itemize was not able to do it early; they’ll have to wait for the IRS to reprogram its computers to reflect the new tax law enacted in mid-December of 2010. When you do itemize, there are a few things to keep in mind. First, not every dollar you spend can be subtracted from your income. In the medical category, only expenses that exceed 7.5% of your adjusted groos income can be deducted. If you didn’t spend that much, then none of your costs are deductible. You have to reach a 2% of income threshold before you can use miscellaneous deductions, such as unreimbursed job expenses and invesment and tax-preparation costs. There also are restrictions on how much in casualty losses you can deduct, as well as limits on the deductibility of very large charitable contribution amounts.

Now let’s see how filing status affects figures. Filing status sometimes affects your deduction method and amount. Married couples who file separately, for example, must work together when it comes to deciding which deduction route to take. Even though each partner will fill out a separate return, if one spouse decides to itemize, the other must do so, too. Similarly, if someone claims you as an exemption on his tax return, the amount of the standard deduction you can take on your own return may be limited. Finally, your deduction decision isn’t a lifelong commitment. As long as you meet the other guidelines discussed above, you can claim the standard deduction one year and itemize the next. Again, use the deduction method that gives you the lowest tax bill.