posted on November 13th 2017 in Austin CFP Team Posts with 0 Comments /

This is an excerpt from the WorthPointe e-book A Financial Planning Guide for the LGBT Community by Kermit Johns. This resource is provided as a complimentary resource to aid for the community.

Before getting married — remembering your status for federal tax return filing depends on your marriage status on December 31 you should determine if filing as Single and postponing marriage until early the following year makes sense. An example might be if one spouse earns a significant amount in the year of marriage, or has a windfall. Since a Married Filing Joint tax return generally makes both spouses liable for any tax debt, the spouse with the smaller amount of income may prefer to have the spouse with the windfall file Single and be solely liable for any tax obligation. Holding off on marriage until the following year would accomplish this.

On the other hand, if one spouse has a significant amount of income and is in a high tax bracket, while the other spouse is in a lower tax bracket, filing Married Filing Joint and combining incomes may reduce the amount of the first spouse’s taxes that are subject to tax at the higher tax brackets, thereby reducing the combined tax paid by the household. In this case, marrying prior to the end of the tax year would make sense. If you have questions about the consequences of either scenario, you should consult your tax advisor and ask if he or she can prepare a projection under both scenarios (each filing Single vs. filing Married Filing Joint).

Once you’re married, you have the option of filing Married Filing Separately or Married Filing Joint. Overwhelmingly, the best choice is normally to file as Married Filing Joint. When you file Married Filing Separately, there are certain deductions and credits the IRS will disallow, including student loan interest, child tax and dependent care credits, tuition credits, earned income credits, and adoption credits.

Keep in mind that as discussed above, there are other complexities to consider if you file Married Filing Separately and live in a community property state. Although your filing status may be Married Filing Separately, that doesn’t necessarily mean you’ll only report your income and expenses. You may be required to report half your spouse’s income and expenses as well. Additionally, if one spouse itemizes deductions (mortgage interest, property taxes, charitable contributions, etc.), the other spouse must also use the itemized deduction method vs. taking the standard deduction.

 

 

About the Contributor: Iain A. Howe, CPA

Owner/Certified Public Accountant, Iain Howe, CPA & Associates, PLLC

Iain A. Howe is a Certified Public Accountant with the firm Iain Howe, CPA & Associates, PLLC. He graduated from the University of Texas at Austin with a masters in professional accounting, and has been practicing as a CPA for over 15 years. He has experience working in both the corporate tax world (Temple-Inland, Inc. and Freescale Semiconductor, Inc.) as well as in public accounting with firms in the Austin area. In 2015, Iain started his own tax preparation and business consulting firm and brings a wealth of knowledge to his clients in a relaxed and amiable manner.

Iain’s clients include high net worth individuals, partnerships, C Corps, S Corps, trusts and sole-proprietor businesses. His firm also prepares tax returns for a number of international clients — U.S. citizens living abroad and citizens/residents within the U.S. with income from international sources.

Over the years, Iain has authored articles and blogs for various magazines and websites, and keeps in tune with the ever-changing regulatory tax landscape. Iain is an avid cyclist, except during tax season, when he is a full-time chair sitter and computer screen starer-atter!

about the author: Kermit Johns

kermit640x640Kermit Johns is a Financial Planner who has extensive experience addressing the financial goals and the issues that same-sex couples face by offering his knowledge of comprehensive investments, and tax and estate planning. Kermit has served as an executive director in Corporate Tax with Time Warner Inc. and as a corporate tax manager for the Hertz Corporation. Kermit previously served as a managing director of his own registered investment advisory, Johns & Wilkinson LLC, in New York and Austin, where he successfully developed business relationships with individuals and couples, not-for-profit agencies, and foundations. Kermit was an FINRA-Licensed Securities Advisor and principal since 1997.

Learn more and/or Contact Kermit Johns

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