Preparing your annual income tax return for the IRS is a chore — and it can be even more complex when you’re married. You might have two sets of income, assets, debts and deductions. If you were separated, widowed or divorced during the year, you might have an even more complicated tax situation.
For specific tax advice, you should consult a qualified financial or tax advisor. For an overview of some of the most common and significant tax problems married — and divorce — people face, keep reading. Understanding these challenges and finding the best tax deductions for married couples can help you get more tax breaks this year.
1. What Is My Marital Tax Filing Status for This Tax Year?
When preparing taxes, you first need to determine your marital status in the current tax year, which means you also need to know the correct tax year dates.
The IRS considers you to be married if you were lawfully wed on the last day of the tax year. For example, if you tied the knot at any time in the past and were still married on Dec. 31, 2017, you were married to your spouse for the entire tax year in the eyes of the IRS. The laws of the state in which you live determine whether you were married or legally separated for the tax year.
2. Are Same-Sex Marriages Taxed the Same as Heterosexual Marriages?
Married same-sex couples are treated the same as married heterosexual couples for federal tax return purposes. In states that do not recognize same-sex marriage, same-sex couples in a registered domestic partnership or civil union, however, cannot choose to file as married couples, as state law doesn’t consider those types of unions the same as heterosexual marriages.
3. What Is My Married Filing Status?
If you weren’t married on Dec. 31 of the tax year, the IRS considers you to be single, the head of household or a qualified widow(er) for that year.
If you were married, you have three filing possibilities:
- Married filing jointly
- Married filing separately
- Head of household
If more than one category might apply to you, the IRS permits you to pick the one that lets you pay the least amount in taxes.
4. Should We File Jointly or Separately?
If you’re married and don’t qualify to file as head of household, you typically have two choices: filing jointly or separately. It’s best to choose the one that allows you to pay the least amount in taxes, which all comes down to your particular circumstances.
Sometimes it makes sense to file separately, said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “A joint return means that your finances are linked, so you’re both liable for each other’s debts, penalties and liabilities.”
“So if either of you has some financial issues or baggage, then filing separately will better protect your spouse from your bad record, or vice versa,” he said.
If you file jointly, you can’t later un-couple yourselves to file as married filing separately for that year’s tax return. “On the other hand, if you file separate returns and then realize you should have filed jointly, you can amend your returns to file jointly within three years,” Zimmelman said.
5. Is ‘Married Filing Jointly’ the Best Option?
Even if married filing jointly has been your best choice in the past, don’t assume it will always be that way. Do the calculations each year to determine whether filing singly or jointly will give you the best tax result.
Changes in your personal circumstances or new tax laws might make a new filing status more desirable. What was once a marriage tax break might turn into a reason to file separately, or vice versa.
6. What Is the Healthcare Requirement for My Tax Filing Status?
The Patient Protection and Affordable Care Act — more commonly known as Obamacare — requires that you and your dependents have qualifying healthcare coverage throughout the year, unless you qualify for an exemption or make a shared responsibility payment. Even if you lose your health insurance coverage because of divorce, you still need continued coverage for you and your dependents during the entire tax year.
For tax year 2017, the rules remain unchanged, but this might change under the Trump administration for future tax filing years.
7. If I Changed My Name This Year, Which Name Should I Use When I File My Taxes?
If you want to change your last name after a marriage or divorce, you must officially inform the federal government. Your first stop is the Social Security Administration.
Your name on your tax return must match your name in the SSA records. Otherwise, your tax refund might be delayed due to the mismatched records. Also, don’t forget to update the changed names of any dependents.
8. What Tax Filing Status Do I Use If My Spouse Died?
If your spouse passed away during the year, you’ll need to determine whether and how your filing status should change. If you didn’t marry someone else the same year, you may file with your deceased spouse as married filing jointly.
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If you did remarry during the tax year, you and your new spouse can file jointly. In that case, you and your deceased spouse must file separately for the last tax year of the spouse’s life, however.
In addition, if you didn’t remarry during the tax year of your spouse’s death, you might be able to file as qualifying widow(er) with dependent child for the following two years if you meet certain conditions. This status entitles you to use joint return tax rates and the highest standard deduction amount.
9. Are We Both Liable If We File Jointly?
If you use the status married filing jointly, each spouse is jointly and severally liable for all the tax on your combined income, said Gail Rosen, a Martinsville, N.J.-based certified public accountant. “This means that the IRS can come after either one of you to collect the full amount of the tax,” she said.
“If you are worried about your spouse and being responsible for their share of their taxes — including interest and penalties — then you might consider filing separately,’ she said.
10. Will One of Us Lose Marriage Tax Benefits If We File Separately?
Although filing separately might protect you from joint and several liabilities for your spouse’s mistakes, it does have some disadvantages. For example, people who choose the married filing separately status might lose their ability to deduct student loan interest entirely.
In addition, they’re not eligible to claim some tax credits, like the earned-income tax credit, and they might also lose the ability to claim the child and dependent care credit or adoption tax credit, said Eric Nisall, an accountant and founder of AccountLancer, which provides accounting services to freelancers.
11. Do We Meet the Medical Expense Deduction Threshold?
To include nonreimbursed medical and dental expenses in itemized deductions, the expenses must meet a threshold of exceeding 10 percent of your adjusted gross income. When you file jointly, however — and thus report a larger combined income — it can make it more difficult for you to qualify.
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12. How Can We Get a Marriage Tax Break Instead of a Marriage Tax Penalty?
Many people complain about the marriage tax penalty. “Married filing jointly may result in a higher tax bill for the couple versus when each spouse was filing single, especially if both spouses make roughly the same amount of income,” said Andrew Oswalt, a CPA and tax analyst for TaxAct, a tax-preparation software company.
You might have an opportunity to pay less total tax — getting a marriage tax break — if one spouse earns significantly less, however. “When couples file jointly with largely differing income levels, this may result in a ‘marriage tax benefit,’ potentially resulting in less tax owed than when the spouses filed with a single filing status,” Oswalt said.
13. If We Divorced This Year, Do We Still Need to File a Tax Return as Married?
If your divorce became official during the tax year, you need to agree with your ex-spouse on your filing status for the prior year when you were still married. As to whether you should file your final return jointly or separately, there is no single correct answer. It partially depends on your relationship with your ex-spouse and whether you can agree on such financial decisions.
14. Who Gets to Claim the Kids on Taxes After Divorce?
Divorcing parents might need to determine which parent gets to claim the exemption for dependent children. Normally, the custodial parent takes the deduction, Zimmelman said. “So if your child lives with you more than half the year, and you’re paying at least 50 percent of their support, then you should claim them as your dependent,” he said.
In cases of shared custody and support, you have a few options. “You might consider alternating every other year who gets to claim them,” said Zimmelman. Or if you have two children, each parent can decide to claim one child, he said.
15. Can I Deduct Voluntary Alimony Payments?
If you want to deduct alimony payments you made to a former spouse, it must be in accordance with a legal divorce or separation decree. You can’t deduct payments you made on a voluntary basis.
16. Can I Deduct Court-Ordered Alimony Payments?
Unlike child support that isn’t tax deductible, you are permitted to deduct court-ordered alimony you paid to a former spouse. It’s a deduction you can take even if you don’t itemize your deductions.
Make sure you include your ex-spouse’s Social Security number or individual taxpayer identification number on line 31b of your own Form 1040. Otherwise, you might have to pay a $50 penalty and your deduction might be disallowed.
17. Can I Deduct Child Support Payments?
Even if you don’t take the standard deduction and instead itemize your tax deductions, you can’t claim child support payments you paid to a custodial parent.
18. Do I Have to Claim Child Support as Income?
You do not need to report court-ordered child support payments as part of your taxable income. You must report alimony you receive as income on line 11 of your Form 1040, however.
19. Who Gets a Tax Benefit for Saving Money in a Retirement Account?
If you contribute to a 401k plan, you can save money for your golden years and lower your taxable income now. If your employer offers a 401k plan, you can contribute money on a pretax basis, subject to certain limits. Nonworking spouses, however, can’t contribute to a 401k because they don’t have wages from an employer. Both of you can explore other tax benefits for contributing to different types of individual retirement accounts.
20. What Do I Do If I Missed Making Quarterly Tax Payments?
Single or married, you might have to pay quarterly tax payments to the IRS, especially if you are self-employed. Make sure you know how to calculate estimated taxes. If you are required to make such payments but do not do so, you might have to pay an underpayment penalty, Rosen said.
All taxpayers must pay taxes during the year equal to the lower of 90 percent of the tax owed for the current year, or 100 percent — 110 percent for higher-income taxpayers — of the tax shown on your tax return for the prior year, Rosen said. “The problem for married couples is that often they do not realize they owe more taxes due to the combining of the two incomes,” she said.
You should be proactive each year. “To avoid owing the underpayment penalty, make sure to do a projection of your potential tax for 2017 when you finish preparing your 2016 taxes,” she said, adding that you should make sure to comply with the payment rules outlined above.
21. Do We Still Qualify for Passive Losses With Our Joint Income?
Crystal Stranger — a Los Angeles-based enrolled agent, president of 1st Tax and author of “The Small Business Tax Guide” — said she sees a lot of married couples who have issues with passive loss limitation rules.
“With these rules, if you have a passive loss from rental real estate or other investments, you are allowed to take up to $25,000 of passive losses against your other income,” she said. “But this amount phases out starting at $100,000 (of) adjusted gross income, and is fully lost by $150,000 (of) adjusted gross income.”
Married filers lose out, as the phaseout amount is the same for a single taxpayer as for a married couple. “This is a big marriage penalty existing in the tax code,” Stranger said. “It gets even worse if a married couple files separately. The phaseout then starts at $12,500, meaning almost no [married filing separately] filers will qualify.”
22. Should I Still Claim My Child as a Dependent If My Income Is High?
You are not obligated to claim your kids as dependents on your own tax return. In fact, it might be beneficial not to claim them, according to Nisall.
“High earners lose the personal exemption after crossing certain income thresholds,” said Nisall. So in some cases, it might make more sense to let working children claim the exemption for themselves on their own return, he said.
23. Do We Qualify for the Child Tax Credit?
“The child tax credit phases out starting at $55,000 for couples electing to use the married filing separately filing status, and [at] $110,000 for those choosing the married filing jointly status,” said Oswalt. “But married couples receive twice the standard deduction that individuals receive, so the phaseout limitations may not negatively impact a married couple’s return if they choose to file jointly.”
24. Can We Get a Tax Break for Selling Our House This Year?
The IRS provides a tax break when you sell your home, subject to certain conditions. Generally, you must meet a minimum residency period by owning and living in the house for two of the five years preceding the sale.
A single person who owns a home that has increased in value can qualify to exclude up to $250,000 in gains from income, said Oswalt. Married people can exclude up to $500,000 in gains.
This rule can become tricky if one person in the couple purchased the house prior to the marriage: “If you are married when you sell the house, only one of you needs to meet the ownership test for the $250,000 exclusion,” Oswalt said. “You both must meet the residency period to exclude up to the full $500,000 of gain from your income, however.”
25. Do We Qualify for the Child and Dependent Care Credit?
Married tax filers might be eligible for the child and dependent care credit if they paid expenses for the care of a qualifying individual so that they could work or look for work. The rules for who can be a dependent and who can be a care provider are strict. This credit is not available if you file separately.
26. Can We Deduct Our Student Loan Interest?
If you are paying back student loans, you might be looking forward to taking the student loan interest deduction. If you’re married, however, it might not be so easy to do that.
“For a single filer, the deduction begins to phase out when the taxpayer’s adjusted gross income is greater than $65,000,” said Oswalt. “This amount is doubled to $130,000 when filing jointly.”
“So if both spouses are making $65,000 or less, then their deduction will not be affected by the phaseout,” he explained. “However, if one is making $60,000 and the other $75,000, the deduction begins to phase out, which will ultimately result in a larger tax bill.”
27. How Do We Report Gambling Wins and Losses on Our Taxes?
Imagine a married couple who both like to gamble. He’s not so lucky and has losses, and she has winnings. If they file a joint return, they might have to report the gambling winnings as taxable income. Meanwhile, the losses might be deductible if the couple itemizes their deductions instead of taking the standard deduction.
They can’t take the amount of gambling winnings, subtract the losses and claim the net amount as winnings. Instead, they must report the entire amount of gambling winnings as income, whereas the losses are reported as an itemized deduction up to the amount of the winnings. The IRS requires you to keep accurate records of your winnings and losses.
28. What Do We Do If One of Us Is a Victim of Tax Identity Theft?
Identify theft can be a financial nightmare. Tax identity theft happens when someone files a tax return using one spouse’s or both spouses’ Social Security numbers in hopes of scooping up your legitimate refund. If this happens to you, “contact the IRS immediately and fill out an identity-theft affidavit,” said Zimmelman. “You should also file a complaint with the Federal Trade Commission, contact your banks and credit card companies, and put a fraud alert on your and your spouse’s credit reports.”
29. Where Can I Get a Copy of My 2015 Tax Return?
The IRS and state tax agencies work to develop safeguards to avoid identity theft related to tax returns. In 2017, they will be particularly concerned about the implications of taxpayers who file using tax software.
The IRS has alerted taxpayers that they might need to have their 2015 adjusted gross income handy if they are changing software products in 2017. This number might be required to submit your return electronically.
Getting your 2015 adjusted gross income might be difficult if you are divorced and not on good terms with your ex or if you can’t find all of your documents for totaling your income for that year; however, you still have options. You might be able to get the information if you go to the IRS website and use the Get Transcript service.
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