Source: http://twocents.lifehacker.com/the-best-time-to-get-married-depending-on-your-taxes-1771678475
You’d have to be a very practical person to schedule your wedding around taxes, but most people do think about the money benefits of marriage before they tie the knot. That timing can affect how much you pay the IRS. If you a date that’ll save—or make—you a little cash, here’s what you should know.
Calculate Whether You’ll Get a Bonus or Penalty
Depending on how much you earn, you and your spouse will either get a marriage bonus or a marriage penalty when you tie the knot.
Most couples get a bonus, which means they pay less in taxes by combining their incomes. However, some couples do get a penalty, meaning their combined incomes push their combined household into a higher tax bracket. This usually happens when both partners earn a similarly high or low income. Here’s how one tax analyst explained it over at U.S. News and World Report:
While Congress extended relief from the marriage penalty in the 10 and 15 percent tax brackets, those in higher tax brackets could still pay more. That means they could pay more than they would if they were single, earning the same amount. “The more equal the two incomes are, the greater chance of a marriage penalty,” explains Luscombe. Two incomes that would be taxed at 15 percent separately might together be taxed at 28 percent, for example.
We’ve written about taxes and marriage in detail, but when it comes to picking the best time to get married, you just need to know whether you’ll get a bonus or a penalty when you wed. Thankfully, the New York Times designed a handy bonus or penalty calculator that does the math for you.
The IRS Considers You Married for the Entire Tax Year
When you do your taxes for the first time as a married person, you might be surprised to know that even if you got married in December, the IRS considers you married for the entire year. (The same goes for getting divorced. If you divorce on December 31, you’re divorced for the entire tax year in the eyes of the IRS.) In other words, your filing status for the entire tax year depends on your marital status as of December 31st of that year.
This rule catches many marriage penalty couples off guard because they end up owing more than they realize. Forbes explains how this happens:
“The biggest challenge to a lot of couples is they end up owing taxes because they were under-withheld [during the portion of the year they were single],” Poulos says. This would especially be the case for couples who get bumped into a higher tax bracket as a result of their joint income…Ultimately, they may end up paying more in taxes to make up for what they didn’t pay while they were in their lower, single-person tax bracket.
On the other hand, if you get a bonus, this rule works in your favor. You get a bonus for the entire year, even if you married July, October, December—whenever.
How to Choose a Date Based on Whether You’ll Get a Penalty or a Bonus
If you fall under the marriage penalty umbrella, timing your wedding toward the beginning of the year could help you save money on taxes. For example, if your wedding is in October 2016, and you’re pushed into a higher bracket, you’ll pay more starting in the year 2016. If you wait a couple of months and marry in January, though, your new, higher tax bracket wouldn’t take effect until 2017, saving you an entire year of paying more in taxes.
Obviously, there’s a lot more that goes into that decision, even financially: the cost of the venue, flight prices for out of town guests. Plus, there are specific tax benefits you get when you marry and file jointly, even if you get the penalty. TaxAct details a handful of those advantages here. For example:
If you own a home that has gone up in value, as a single person you may qualify to exclude up to $250,000 in gain from your income.
As a married person, you can exclude up to $500,000 from income. To qualify for this exclusion, you generally have to own and live in the house for two of the last five years or meet an exception such as a job transfer.
Postponing your date means you’ll miss out on those benefits for the year, too.
On the flip side, if you’re getting a bonus, you can marry early to take full advantage of it. For example, you could move your January 2017 wedding to December 2016 so you can squeeze in an extra year of tax savings and benefits. Of course, that also means you’ll be in wedding mode around the holidays, which sounds like a nightmare.
Change Your Withholding Before Wedding Day
No matter when you get married, you should at least adjust your withholding to prepare for the change in status.
If you get a penalty for the year, adjusting your withholding now ensures you don’t get a huge, surprise tax bill in April. If you get a bonus, adjusting now ensures you don’t overpay your taxes during the year.
Start with this tax withholding calculator, and enter in your soon-to-be filing status. From there, ask your employer if you can update your W-4, then you’ll add or remove certain allowances. The more allowances you claim, the less tax you’ll have withheld. So if you’re getting a penalty, you’ll want to remove certain allowances. This means you’ll pay more in taxes during the year, which is ideal if you want to avoid a huge tax bill next April.
Most of us aren’t going to plan a momentous, presumably once-in-a-lifetime event around our taxes. Still, it’s good to know how your wedding date will affect your finances, beyond the money you spend on the event itself. Especially if you’re getting a penalty, it helps to be prepared for all the changes.