Getting married is a major milestone, and one that comes with financial and tax-related consequences. If you're planning to get married in 2017, a few strategic tax moves this year could put more cash back in your pocket once you tie the knot.
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How marriage impacts your taxes
Married couples have the option to file their taxes jointly or separately, but in most situations, the former is typically the better deal. That said, getting married could help your tax situation or hurt it depending on how much you and your spouse make.
Some couples are fortunate enough to reap the benefits of what's known as the marriage bonus. The marriage bonus typically comes into play when one spouse earns considerably more than the other. If you have a couple where one person barely earns any money while the other earns much more and is in a high tax bracket, there's a good chance that their combined income will put them into a lower tax bracket and they'll pay less taxes on their earnings.
On the flip side, many couples get caught in what's known as the marriage penalty. The marriage penalty usually applies when both spouses earn similar amounts of money -- especially in situations where both salaries are high to begin with. If you have a couple where each individual is in the 25% tax bracket but their combined income bumps them into the 28% bracket, they'll end up paying more taxes than they did when they were single.
With that in mind, here are two opposite tax moves to consider this year if you're planning on getting married in 2017. The option you choose will depend on whether you anticipate getting hit with the marriage penalty or benefiting from the marriage bonus.
Accelerate your income so you're paid more this year
This move applies to couples who expect to be hit with the marriage penalty. If you expect your tax burden to go up next year once you tie the knot, then you're better off accelerating as much of your income as possible into the current tax year. If you're a freelancer, this might involve going after unpaid invoices sooner rather than later, or even temporarily shortening your payment terms. If you're expecting a year-end bonus, talk to your employer about getting that check in on Dec. 31 of this year as opposed to January 1.
Furthermore, if you have investments to sell at a profit, you may be better off taking the gains this year as opposed to next year, especially if you've already held the investments for at least a year and a day and will be taxed at the more favorable long-term
Defer income until next year
If you expect that you and your soon-to-be spouse will benefit from the marriage bonus, then it pays to defer as much income as possible to 2017, at which point you'll be taxed at a lower combined rate. If you're a freelancer, hold off on sending out those invoices or consider giving your clients a temporary year-end courtesy extension. If you typically receive a bonus on or around Dec. 31, see if that payment can be postponed until Jan. 1.
If you have investments to sell at a gain, hold off until 2017. This applies whether you're looking at short-term capital gains or long-term gains.
Finally, remember that your marital status is determined as of Dec. 31 of each year, so whether you get married in Jan. 2017 or much later on in the year, you'll be considered married the entire year for tax purposes. Be sure to plan accordingly, because the last thing you want is a rocky financial start to your marriage.
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