It's fitting that Valentine's Day — it's this Thursday in case the most romantic day of the year is sneaking up on you — comes during tax filing season.
While most of us marry for love, finances and the related taxes are a big part of our coupled relationships.
Here's a look at five love and taxes considerations.
1. Marriage date matters.
Your wedding day is important to the Internal Revenue Service. No, the tax collector doesn't want to send you an anniversary card. But when you said "I do" matters when it comes to how you file your taxes, specifically the filing status you choose. More on that in a minute.
You are considered married as long as you legally exchanged vows by or on the last day of the tax year. A Dec. 31 wedding means you were married for all of that year in the eyes of the IRS.
Similarly, if the romance has faded and you're no longer a couple, you also are viewed as divorced for the full tax year if your decree is issued by the Dec. 31.
2. Picking the proper filing status.
You still have five filing statuses from which to choose when you file your return. The two that apply to married couples are married filing jointly (MFJ) or married filing separately (MFS).
Most couples use MFJ, combining their incomes and sharing deductions and credits on one Form 1040. MFJ is simpler, both for you and the IRS.
But ease shouldn't be the sole determinant. Certain tax credits are available at a higher income limit for married filing jointly taxpayers or are only available to couples who use this status.
In some cases, though, filing separate returns is a good call for a married couple. This could be the case if MFS results in one spouse owing less tax than if you file a joint tax return. An example of when this might happen is when one spouse had lots of medical expenses, but the couple's combined income produced an adjusted gross income percentage deduction threshold that was too high to meet.
Sending the IRS separate returns also is a good idea if one spouse has some questions or concerns about claims his or her partner wants to make on a 1040. Remember that when you file jointly, each spouse can be held responsible for any tax bill (and penalty and interest) that the IRS might determine is due. This situation, known as joint and several liability, applies even if only one spouse earned all the income.
3. Assess your marriage tax penalty or bonus.
For many couples, getting married results in a lower tax bill compared to the single filing status. This tends to happen when one spouse earns significantly more than the other.
Couples that earn similar amounts, however, may wind up paying more combined federal and state tax. This is especially true for higher income earners.
The Tax Cuts and Jobs Act (TCJA) made many changes, but these so-called marriage tax penalty or bonus situations remain.
As with all things tax, marriage penalties and bonuses depend on your personal circumstances. But it's good to know how your vows affect your tax situation and explore possible options to ease any added tax costs.
If you can't, I doubt your married tax bills will change your decision to be together. After all, your vows did say for richer and poorer.
4. Tax benefits for married couples.
There are some specific tax benefits to being married, particularly if you're looking to sell your home or can afford to give away some of your assets.
When you sell your primary residence as a single homeowner, you can exempt up to $250,000 of gain from taxation. If you're married, your tax-free profit is in most cases $500,000.
Your combined itemized deductions also may be greater than if you're single. Of course, your combined income that the Schedule A claims will offset also might be more.
And if you have a lot of money and are looking to whittle down what eventually might face the federal estate, married couples get a bigger benefit from the gift tax exclusion. This is the amount each person can give to anyone else during a year without tax consequences. It's $15,000 per person for both the 2018 and 2019 tax years. But a married couple can combine the federal gift tax exclusion and give joint gifts of $30,000 to any one person.
5. Know the tax cost of your Valentine's Day gift.
You don't have to be married to give your true love something special on Feb. 14. On the other hand, I also know some long-married couples who skip the annual display of hearts and flowers.
Regardless of your marital status, if you do exchange Valentine's Day gifts, taxes probably aren't why you decide on a specific item to showcase your feelings.
Still, it doesn't hurt to know how your state taxes certain types of gift. Your spouse or significant other might even be impressed that you're taking the finances that you now or soon might share or seriously.
Carol Kokinis-Graves, an attorney and senior tax analyst for Wolters Kluwer Tax & Accounting, notes that different states can treat the taxes on the same type of gift very differently.
States do not impose sales taxes on all goods and services in a uniform manner or at a uniform rate, she notes. Five states don't have sales taxes. Many states do not tax services. Many states have an exemption for taxes on food, but they often define what is included in the exemption very differently, especially with respect to candy.
Kokinis-Graves cites some popular Valentine’s Day gifts and some of the different sales tax treatments they face:
- Candy, and in particular chocolate, remains a popular Valentine’s Day gift choice. Some states have adopted a uniform definition of candy, but many use their own unique definition. A few states separately address chocolate. Candy is subject to sales tax in 29 states and exempt from sales tax in 16 states and the District of Columbia.
- Many states do not specifically address jewelry, making it subject to the general sales tax rate. In those states that do mention jewelry, it is taxable or even subject to a higher tax rate.
- Flowers are generally taxable. However, a couple of states have limited exemptions for flowers from certain sources. A few states have a sales tax exemption for food-producing plants.
- Dining out, or "prepared food" in sales tax speak, is pretty uniformly taxable even if there is otherwise an exemption for other food, but again definitions vary.
- A day at a spa is a service, and many states do not tax services. In the half-dozen states that specifically mention spas, some tax them and some do not.
Again, the taxes tacked on to your Valentine's Day gift (or gift certificate) probably won't change your choice. But it always helps to know just what you're paying.
OK, enough with the taxes … for now. Don't worry about them on Feb. 14, which I hope is a perfect Valentine's Day for you and your sweetheart. You can think about taxes and your relationship on the 15th and beyond.
You also might find these posts of interest:
- 10 tax tips for newlyweds
- After "I do," say "I donate" my wedding dress
- 4 tax-smart ways to give back on your wedding day