Tax-timing a Marriage or Divorce

As part of your tax planning, you need to consider an expected change in your filing status for this year or next. The frequently overlooked strategy is that the advancement or postponement of the date of a marriage or a divorce by a single day at year’s end can make a sizable difference in the amount of your tax tab for both years.

Usually, your marital status as of Dec. 31 determines your filing status for the full year. (There’s an exception: If your spouse died during the year, you can still file a joint return.) Consequently, the IRS considers you a married person for the entire year in question, even if you wed just before the ball drops in Times Square. Similarly, the IRS considers you a single person for the entire year, even if your divorce or legal separation occurs as late as Dec. 31.

Suppose, for example, that you and your prospective mate both earn roughly the same. In that event, matrimony before the close of this year may be costly. Reason: The taxes that the two of you become obligated to pay as married on your combined incomes can turn out to be a good deal more than they would be as two unmarrieds who share lodgings and report exactly the same incomes—a law quirk known as the “marriage penalty.” But if you delay the ceremony until next year, you get a reprieve from the marriage penalty for this year.

Conversely, a marriage this year can be a smart move when one of you earns the bulk of the income or considerably more than the other. Couples with dissimilar incomes frequently reap a bonus in the form of decreased taxes.

The IRS applies comparable rules to couples who divorce. Divorce close to the end of the year, and you relinquish the benefits of joint filing for the entire year. To save taxes, you have to remain married beyond Dec. 31.

Curious about the amount of your marriage penalty or bonus? There’s an easy way to find out. The Tax Policy Center, a Washington-based, nonpartisan research group, has posted a calculator at http://www.taxpolicycenter.org/mpc

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Julian Block writes and practices law in Larchmont, N.Y. and was formerly with the IRS as a special agent (criminal investigator) and an attorney. He is frequently quoted in the New York Times, the Wall Street Journal, and the Washington Post, and has been cited as: “a leading tax professional” (New York Times); "an accomplished writer on taxes" (Wall Street Journal); and "an authority on tax planning" (Financial Planning Magazine). This article is excerpted from “Julian Block’s Tax Tips for Marriage and Divorce,” available as a Kindle at Amazon.com and as a print copy at julianblocktaxexpert.com. Law professor James E. Maule, a professor at Villanova University School of Law and Graduate Tax Program, praised the book as “An easy-to-read and well-organized explanation of the tax rules.”  The National Association of Personal Financial Advisers says it is “A terrific reference.”