Don't Mess With Taxes

The most romantic day of the year has past. Some folks are very happy today. Others, not so much.

If yesterday was a great Valentine's Day and you are now engaged, congratulations!

Here's my wedding gift to you: Some tax issues to consider as a married couple.

Filing status: The date you choose to exchange your vows will affect your filing status. If you eloped yesterday or are planning to exchange vows soon, then the IRS will likely consider you married for all of 2012.

I say "likely" because some of you might find yourself in the same situation as Kim Kardashian, quickly deciding married life isn't for you. But if you are married on the last day of the year, then the tax man considers you married for the full year, regardless of whether you said "I do" on Jan. 1 or Dec. 31.

Filing choice: When you get to your first tax filing together (trust me, it's a momentous and romantic event…if you're a tax geek!), you can choose whether to file a joint return or separately.

Most couples will opt for married filing jointly. First, it's easier filling out just one Form 1040 than two. Also, in most cases joint filing provides married couples a better tax deal. There are, however, some cases where filing separate returns is advisable.

The point is, look at both options and see which works best for your and your better half.

Marriage penalty or bonus: Your first joint filing also will reveal whether you're a victim of the marriage tax penalty or will enjoy a marriage tax bonus.

The marriage penalty shows up for some dual income couples who find that their combined tax bill is larger than it would have been if they were still filing as single taxpayers.

Tax law changes that were part of the Bush tax cuts have eased the marriage penalty for most filing duos, but nothing in the tax world is absolute, so be aware that you could see this show up on your joint return. The penalty still tends to pop up when a couple's combined earnings push them into the higher income tax brackets.

Some couples, however, actually receive a marriage tax bonus. This is often the case when there's a big difference between a husband's and wife's incomes. When the much lower income is added to the much higher income, the total basically pulls at least some of the higher income into a lower joint tax bracket, providing tax savings.

Withholding issues: If you both you and your spouse work, you'll need to reassess the amount of withholding you have taken from your paychecks. One or both of you will probably need to adjust your payroll withholding to reflect the two paychecks.

The IRS suggests that the spouse making the most money claim all the allowances on his or her Form W-4 and the other partner claim zero allowances.

Don't put off adjusting your withholding. The sooner you make any necessary changes, the less likely you'll end up with an unpleasant surprise when you file your tax return.

IRA contributions: Your new joint income amount also could affect your retirement contributions. Income limits apply to both a deductible traditional IRA and a tax-free Roth account.

If you made a contribution before your vows, double check to ensure you're still eligible. If you haven't put money into your retirement account, examine the IRA contribution guidelines to make sure you maximize your post-marriage contributions.

Flexible Spending Account options: Marriage is a change in family circumstances that allows you to make mid-year changes to your medical Flexible Spending Account, or FSA. If one of you has an FSA but the other doesn't, consider increasing your contributions to cover your spouse's out-of-pocket medical costs for the rest of the year.

Housing: Where to live is a major decision for newlyweds. And tax considerations could affect your residential choices.

If one of you already owns a home and the other is happy with it, it might be worthwhile from a tax standpoint to stay there, especially if you expect to make a substantial profit on the sale. Yes, I know that's not the case for a lot of homeowners right now, but for a few lucky property owners who might be in this enviable situation, this is for you.

When a married couple sells a residence, they get a tax break twice as large as that available to single home sellers: $500,000 of profit is exempt from taxation instead of just $250,000. But to get that double tax exclusion, each partner must meet residency requirements before the sales; that is, both of you must live in the home for two of the last five years before the sale.

So have your new spouse move into your place and once y'all both hit the two-year mark, you can take advantage of the larger home-sale exclusion tax break.

Same sex couples: All of these federal tax tips apply to married couples as recognized by the IRS. That means marriages between men and women.

Same-sex married couples need to look at how their state tax laws apply to their relationship status and how you coordinate state filings with your federal returns. There are 43 states that tax income and that means there are 43 different sets of tax law for singles and marrieds alike.

My best advice here is to hire a good tax professional.

Not so happy couples: Some folks, however, aren't that lucky in love. And if Valentine's Day didn't go as you'd hoped, you might now be contemplating the end of your relationship.

I'm sorry to hear that. But I have some tax related advice for you, too, if divorce is in your future in the following posts and stories:

• Divorce tax tips from Tiger Woods
• Jon and Kate plus 8 divorce tax tips
• When love goes bad: Divorce and taxes
• For better or ... apparently just better
• Dealing with Divorce Dollars + Cents
  (Austin Woman magazine article; opens in PDF)

And you don't want to miss today's Daily Tax Tip on the tax implications of alimony, both for those paying ex-spousal support and those receiving it.

Yes, I did give the sad side of relationships a bit of a short shrift. What can I say? This post already was getting a bit long.

And despite my gangster themed Valentine's Day post yesterday, I'm still a romantic (of sorts).

So here's hoping that if you're in love now, it lasts forever.

If you're still looking, best wishes on finding your perfect match soon.

And remember whatever happens, the IRS will be part of your relationships.

You also might find these items of interest:

• Valentine's Day tax tips and tidbits
• 56 million married tax filers
• Madoffs, marriage and tax filing