Landen and his fiancé are planning to get married in the fall of 2015 and they're starting to think about how to blend their financial lives together as they tie the knot. There are always a lot of decisions to make when you get married: Will you keep your finances separate or merge them together? Will you add each other onto your existing bank accounts or close them and open joint accounts at a new bank? On and on it goes.
They want to be smart about their finances from the beginning, but somewhere along the line Landen became aware that, in their circumstances, that might also mean they should rethink when they get married. He wants to know: “If we filed our taxes jointly, would we pay significantly lower taxes than if we filed separately? In theory, we could get legally married in 2014, if the savings are worth it, and then hold our actual wedding ceremony with friends and family in 2015. Thanks!”
Landen's future wife is currently in grad school and keeps a part-time job on the side. It doesn't provide much income, just $10,000 a year approximately. On the other hand, he is established in his career and earns a little less than $200,000 a year. The difference between their incomes is big for now, and they don't own a home or have any investments like a 401(k) plan from his employer yet — but that may change if the company he works for sets up the plan before the end of the year. (If they do, he plans to max that out. If they don't, he says he would contribute to an IRA and max it out.)
In the land of rough, rough estimates
Obviously, Landen isn't a tax accountant — and neither am I! Still, I thought providing a rough (really rough) estimate of the two different directions might be interesting. I went to the Internal Revenue Service's website and looked at the Instructions for Form 1040. So even though I make no representation that this is in any way accurate, maybe it could serve to illustrate how to look at the problem and come up with a direction. Here's what I did to think the problem through:
Earning just $10,000 a year, Landen's fiancé is probably eligible for an Earned Income Credit (EIC) of $330 if she were to file single with no children, which would leave her with taxable income of zero after taking the standard deduction of $6,200 and a personal exemption of $3,950. So from the 2013 Tax Table, her tax liability would be ($330). I consulted the 2013 Tax Computation Worksheet — Line 44 instructions to understand Landen's tax liability below, assuming the same standard deduction and exemption.
|Taxpayer||Instructions (2013 Tax Computation Worksheet — Line 44)||Taxable Income||Tax Rate||Product||Subtraction Amount||Tax Liability Filing Single||Tax Liability Filing Married|
|Landen||“Over $183,250 but not over $398,350”||$189,850||33%||$62,650.50||<$15,869.25>||$46,781.25|
|Mr. & Mrs.||“Over $144,400 but not over $223,050”||$189,700||28%||$53,116||<$12,534.50>||$40,581.50|
[Note: An earlier version of this article contained different calculations. Thank you to the readers who made suggestions to make it more accurate. — Ed.]
So if, according to my completely, insanely, rough-order-of-magnitude estimate, Landen and future Mrs. Landen were able to enjoy something on the order of $5,869.75 of savings on their tax return if they were to get married in 2014 and file jointly, would that be significant enough to change their wedding plans? I don't know the answer to that question, actually.
But if I were to answer that question just on the basis of finances alone, I would recommend that they get married in 2014 as he suggests. Off the top of my head, I can think of three things I would do with those savings if I were in their shoes:
- Fund the 401(k) or IRA with it.
- Use it to defray the costs of the wedding.
- Put it toward their honeymoon.
I hope they'll let us know what they decide to do! But what is the best thing for them to do? What would you do? How would the answer change if Landen's employer did open a 401(k) or Landen maxed out a Roth IRA?