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Love, marriage and your first joint tax return

Along with its many joys, marriage brings new challenges. A key financial test of your new relationship is taxes and filing together for the first time.

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But if you put a little thought into your first 1040 as husband and wife, the document (and filing process) can become part of a sound foundation of your newly merged financial life. You might even be able to save enough on your tax bill to pay off the wedding, make a down payment for a house or take a nice little second honeymoon.

Your first tax step remains the same as when you were single: Gather the necessary paperwork. This includes W-2s, 1099s, last year's returns and records of business and other significant expenses, made jointly or separately.

Then sit down and discuss the documentation:

  • How much did each of you earn?
  • Was any income from self-employment? If so, what expenses did you incur?
  • Do you have student loans? If so, how much interest did you pay?
  • Did you buy a house? How much did you pay in points or interest?
  • What assets do you own?
  • What are your debts?
  • How much money are you saving?

Those last three questions might not directly relate to your tax return, but they are important because tax season is "a great time to talk about your financial situation," says Eric Tyson, co-author of "Taxes for Dummies 2004."

"You're co-mingling your finances."

This overall look at your finances also will give you an idea of areas that could impact your taxes. Did one or both of you have a lot of medical bills last year? Did either of you donate cash or goods? Did you pay state taxes? Can your parents still claim you as a dependent? Did you put money into a retirement plan? Each situation could offer tax breaks to claim or pitfalls to avoid.

Your financial review also might shed light on some additional tasks you need to complete before you can file your 1040, especially if the bride took the groom's surname.

Did the new Mrs. contact the Social Security Administration to have her identification number reflect her changed name? If not, do so before filing. If you submit a joint return with a new name without taking that step, the IRS computers won't be able to match the name with the Social Security number. And a name-number mismatch could pose all sorts of tax problems, from delayed returns to disallowed deductions.

Once you've assembled your tax statements, reviewed your financial situation and made the appropriate changes to reflect your newly combined status, it's time to start on your return.

Joint or separate?
Choosing the appropriate filing status is a major tax decision for newlyweds. If you tied the knot last year, even at 11:59 p.m. on New Year's Eve, you can file one of two ways: married filing jointly or married filing separately.

In the overwhelming majority of cases, couples find they get more bang for their tax bucks by filing jointly. Just make sure you both know exactly what's reported on your shared 1040 and why the tax choices were made. Should the IRS come calling, each spouse is personally liable for everything on the return.

"Each party is responsible for the whole amount," says Barry Picker, CPA and author of "Barry Picker's Guide to Retirement Distribution Planning."

"If the tax isn't paid, the IRS can go after either party for the tax. And it's true after a divorce, no matter what you put in the decree."

In some cases, couples find filing separately is warranted. For instance, were you a student supported by your parents for part of the year? If so, some of the education tax deductions might be more valuable to your parents than to you and your new spouse. But if you want your parents to be able to claim that exemption, you have to file separately.

In addition, if you lived with your parents for part of the year, be sure to let them know whether you intend to claim yourself as an exemption. (And the choice is yours, not theirs.)

-- Posted: March 10, 2004





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