Tax and financial advice from the Silicon Valley expert.

Marriage and income taxes

When efiling a tax return, I learned a client “forgot” to tell me he was married last year!

Your filing status is important for many reasons. For example, did you know that, when an individual files as a married person filing separately and the individual or his or her spouse is an active participant in an employer’s retirement plan, the IRA deduction begins to phase out when the individual’s modified adjusted gross income exceeds $0?

Of course there are separate tax rate schedules for individuals who file as single persons and individuals who file married, filing separately.

The problem commonly happens when a tax return preparer starts by carrying over information from last year’s tax returns. Unless the client tells the preparer his or her status has changed (a common question on tax data organizer forms and software), the same filing status as last year is used in error.

Remember that, under the Federal Defense of Marriage Act, the IRS doesn’t recognize marriages between same-sex couples, so they aren’t eligible to file joint income tax returns. Some couples are challenging the Constitutionality of the Act, but this should be done on amended income tax returns.

If the Bush tax cuts expire, the “marriage penalties” in the tax law will become more severe.

It might be a good idea to have some tax planning computations done when planning your wedding date.

I have seen cases where postponing a marriage from December until January of the next year would produce enough tax savings to pay for a nice honeymoon. The additional tax commonly applies when both spouses have high earnings.

In other cases, such as when one of the spouses has very low earnings, a year-end marriage and filing a joint return will result in tax savings.

Remember in community property states that half of each spouse’s earnings and withholdings are supposed to be reported on the separate income tax return of the other spouse.

Part of the IRS matching program, which includes screening for efiing, is to match social security numbers on tax returns when joint returns or married, filing separate returns are filed.

Usually the marital status at the end of the year controls what filing status should be claimed. An exception is when a spouse dies and the surviving spouse hasn’t remarried by the end of the tax year. In that case, a joint return can still be filed.

There is also a special filing status for a “qualifying widow or widower”. A surviving spouse gets to use the married, filing a joint return tax table for two years after the death of his or her spouse if the surviving spouse does not remarry and maintains a household that is the principal place of residence for a son or daughter, adopted child, foster child or stepchild for whom the surviving spouse is entitled to a dependency exemption.

For more information, see IRS Publication 501, Exemptions, Standard Deduction and Filing Informaiton. You can find it at the IRS web site,

Tax and financial advice from the Silicon Valley expert.