Here's How Your Wedding Affects Your Taxes
Congrats! Whether you're recently engaged, about to get married, or newlyweds, you're smack-dab in the center of one of the most exciting times of your life. But that's not to say it's not equally stress-inducing, starting with the fact that weddings are expensive. The good news, however, is that you might be able to get some of the money you spend on your big day back through a few tax perks-especially now that you're filing as a married couple.
Although most couples experience a "marriage bonus" when filing together, it's not always the best option for every couple, according to Lisa Greene-Lewis, CPA, TurboTax expert. That's why it's important to sit down with your partner well before tax season to discuss your combined financial health as well as how your wedding might actually be able to save you a bit of money in the long run. Here, financial experts reveal the ways in which your nuptials might impact your taxes.
Anyone who's ever attended a bridal convention knows about the dozens of opportunities available to try and score a free wedding service of some kind. While it's no doubt exciting to win anything, especially when that prize covers the cost of an expense you'd have to shell out serious cash for, most of these "freebies" will have to be claimed as "other income" on your tax forms, according to certified financial coach Emily Shutt.
That's why she urges engaged couples to be cautious of claiming "prizes" won through any kind of contest. "Make sure you understand the tax impact before you start celebrating, as it could create a huge financial issue for some couples," she explains. Whatever you do, don't just leave it off your tax return, as bigger giveaways vendors will usually issue a 1099 to you and the IRS. "If you're not sure whether or not you'll have to claim it or how it will impact your taxes, consider speaking with a qualified accountant or tax advisor before making any decisions," she says.
The Sales Tax Factor
Many couples who are planning their wedding will dutifully try to stick to their designated budget, but neglect to consider that the sticker price on your DJ, band, florist, or wedding dress typically comes with an added tax, which can be considerably pricey. "In many cases, sales tax is not factored in to vendor quotes, but it's a very real expense that will need to be paid out on the big day," explains Shutt.
As you work with vendors, she recommends making sure you understand everything that is included, as well as everything that is not included in the quotes they provide. "When you get closer to the wedding day and are getting everything finalized, check in with vendors to confirm the final, all-in price you'll need to pay for services and supplies," she says. "Get them to agree in writing, so that everyone is on the same page, you know exactly what to expect and a sales tax debacle doesn't put a damper on the festivities!"
Religious or Non-Profit Donation Deductions
If you're planning to get married in a church or other religious center or nonprofit, Shutt says you might be able to deduct the ceremony or reception rental fees as a donation on your taxes. "As with everything else, check in with a tax professional to determine your eligibility, and make sure you consult with the institution that's hosting the service or reception," she adds. "In many cases, a contribution or fee of a certain amount is a prerequisite for having a religious wedding ceremony performed onsite, so just be clear on whether a tax-deductible donation is an option rather than having to pay a standard service fee that's not deductible."
Additionally, if the site of your ceremony or reception has to purchase any supplies for your event, you might be able to buy them yourself to save on added costs and write those off as donations as well.
If your parents, grandparents or any other family member or friend of the family wants to help you pay for your wedding, there may be tax implications depending on how that money is handled, according to Shutt. "Say your parents want to help you pay all the vendors and just write checks directly to your caterer, your venue, and your florist-that's just your parents being generous with their money and probably not something that would need to be claimed (but check with a tax advisor before making assumptions)," she explains. "If, however, your parents write you a check to help you offset wedding costs, that counts as a gift and might be subject to taxes depending on the amount."
This could change depending on the year you get married, however. For example, the tax-exempt gift amount for 2018 is $15,000 per year per recipient for each gift giver (for example, mom and dad). Shutt explains that this means if both parents give their daughter $15,000 and their new son-in-law $15,000, that's $30,000 per spouse per parent, or $60,000 total that they can gift before they'd need to file a gift tax return and pay taxes. "Since the average length of an engagement in the U.S. today is around 15 months, for families that really plan ahead and are extremely generous, they can take advantage of gifting up to the limit in the first year of engagement, and again in the second calendar year before the wedding, and still fall below the threshold for needing to file a gift tax return," she adds.
Do you remember that form you filled out when you first started working with your employer that asked you to state your marital status-single, married, or married but withhold at higher single rate? Once you're married, you'll want to update this form-or change it to "married" on forms for future employers you work for post-wedding. Shutt explains that if you update to the "married" filing status, your employer will reduce the amount of taxes withheld. "This is great in theory, because it's more money coming to you in each paycheck, until you potentially end up owing more money at tax time because your withholdings throughout the year were lower than they should have been," she says. "To avoid this, you can leave it as is or ask your company to continue to withhold taxes as if you were still single."
The decision is very individual, as Shutt explains that some people prefer to have as little tax withholding throughout the year as possible, and then pay whatever taxes are actually owed when filing later, while others prefer to have a greater amount withheld by their employer throughout the year so they minimize the risk of owing a large amount when they file. "To determine what's going to work best for you, confer with your spouse as well as a qualified tax professional if you're unsure."
Marriage Tax Penalty or Bonus
Depending on your income and the income of your spouse, you may want to file separately rather than jointly. This can be confusing for some newlyweds, considering the fact that their new marriage leads them to believe that jointly is the only option. "When both spouses earn a relatively high income, if they choose to file jointly they could be hit with what's commonly referred to as the 'Marriage Penalty,'" explains Shutt. "For couples where one spouse earns significantly more than the other, they might enjoy the benefit of a 'Marriage Bonus' because of the way the tax brackets and qualified deductions are set up."
However, your salary alone doesn't necessarily determine what taxes will be owed if you file jointly versus separately. "If you both have high salaries but also both carry significant student loan debt, it might still make sense to file jointly, even if it puts you in a higher tax bracket," says Shutt. "Prepare your return both ways to figure out which gives you the lowest overall obligation or the biggest refund.
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