[IMGCAP(1)]With the average cost of a wedding soaring to $30,000, prospective brides and grooms—and their parents—have a lot more to worry about than simply planning the details of the day.
While certain tax deductions might offset some of the expenses of the wedding, other tax implications may have a negative effect, according to Mark Luscombe, JD, LLM, CPA, and principal federal tax analyst for Wolters Kluwer.
In the shift from single filing to joint filing, couples with taxable income above the 15 percent bracket may have a marriage penalty or a marriage bonus, according to Luscombe. For those with roughly the same income there may be a penalty, while those with a wide disparity in income might have a bonus.
“There has been some effort over the years to eliminate the marriage penalty,” he observed. “The standard deduction for joint returns is double that of the standard deduction for single filers. And in the bottom two brackets—the 10 percent and 15 percent brackets—the cutoff point for joint filers is exactly double that for single filers. But the cutoff point in the upper brackets for joint filers is not double that for single filers, as it is in the 10 percent and 15 percent brackets.”
“For example, for 2016 the cutoff for the 10 percent bracket for singles is at $9275 and for joint filers it goes up to $18,550, exactly twice the amount,” Luscombe observed. “But the 25 percent bracket for singles cuts off at $91,150, and for joint filers it goes up to $151,900, which is not twice the amount for singles.”
For a couple where there is only one working member of the household, marriage can create a bonus, where the additional income does not push the couple’s combined income into a higher bracket, but much of the combined income is taxed at a lower bracket. On the other hand, two individuals with equal incomes are more likely to be pushed into a higher bracket.
Name changes, while seemingly trivial, are often overlooked and can lead to rejected returns, Luscombe noted. If the name and Social Security number don’t match, the return will be rejected. And addresses are becoming more important, he indicated, since the IRS looks at address changes as possible sources of ID theft.
The attempt to deduct the cost of a wedding as a business expense, particularly when business clients are invited, seems logical, but the IRS doesn’t view it that way, Luscombe observed.
And where parents give funds to the bride and groom to pay for the wedding it looks like a gift, but if there’s a cultural obligation to provide for the wedding and they pay the vendors directly, that would eliminate the gift tax as an issue, Luscombe observed. “Although with the annual exclusion of $14,000, and both parents giving [to both parties in the couple], that would add up to $56,000, which is enough to pay for a fairly expensive wedding.”
Prospective newlyweds should plan on the coordination of employer-provided fringe benefits, Luscombe suggested. Although they both may have insurance through their employer, it may make sense to enroll both in the better plan, he indicated. And life insurance and disability insurance may be more important in a marriage situation.
If a sale of one or perhaps two houses is planned when two households become one, the couple will need to learn about the exclusion of gain when a house is owned as a principal residence for at least two of the five years preceding the sale, Luscombe noted. “Sometimes they may rent out a second home rather than sell it, but if they rent it for more than three or four years they will probably lose out on the exclusion, since it won’t meet the two out of five year rule for a principal residence.”
Last year the Supreme Court sanctioned same-sex marriages as the law of the land, Luscombe observed. “It was already the law in 35 states, so it pushed 15 states into compliance,” he said.
“By and large, all 50 states have fallen into line and will treat same-sex marriages the same as heterosexual marriages,” he said. “For state tax purposes some couples may be moving into a marriage penalty situation when they get married, but for other purposes, such as estate planning and gifting, being treated as married is a plus.”
It is becoming more common for vendors in the marital arena to offer special deals and giveaways, Luscombe noted. “But a ‘free tuxedo’ is not really free, if you’re receiving it because you’re buying something else,” he said. “When you’re looking at special deals with wedding vendors, be aware of possible tax consequences of goods and services you’re receiving.”
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