married couples | KRS CPAs™

If you were married this past year, congratulations!

Getting married is a big step in your life and along with it comes many changes. One change is filing taxes as a married couple for the first time. This advice can help you get started.

First, you must determine your filing status. Your status depends on your marital status on the last day of the year. If you were legally married as of December 31, you are considered to be married for the full year and must either file a Married Filing Joint or Married Filing Separate tax return. Filing status is important for determining your standard deduction, whether you qualify for various deductions and credits, and the amount of tax is owed.

Filing Alternatives

If you choose to file a Married Filing Joint tax return, you must include all your and your spouse’s income, deductions, and credits on one tax return. The standard deduction in 2018 for filing a Married Filing Joint tax return is $24,000. If you choose to file a Married Filing Separate tax return, each of you will report your respective income, deductions, and credits on separate tax returns.

The standard deduction for a Married Filing Separate tax return is $12,000 each. Married Filing Separate will rarely produce a lower tax liability. Most tax preparing software will provide you with an analysis on whether filing separately makes sense. If using a self-preparing software or if you work with a tax preparer, be sure to ask which way produces a lower liability for your family.

When filing a separate tax return, there are some tax deductions that may be unavailable to you:

If you itemize your deductions, your spouse must also itemize their deductions. You may not mix and match the itemized deduction and the standard deduction.
The Earned Income Credit is unavailable.
The Child and Dependent Care Credit is generally unavailable.
You cannot deduct interest paid on student loans.
Adoption Credit is generally not allowed.
Reduction of Child Tax Credit is unavailable.

Considerations for Working Couples

For couples who both work, both spouses will need to adjust the tax withholding from their paychecks. One of the biggest mistakes of newlywed couples and taxes is the under withholding of income tax from their paychecks. Because your income will be taxed together, this may push you into a higher tax bracket and when it’s time to file your tax return, there will be a surprise balance due. Be sure to sit down with your spouse and properly fill out each of your Form W-4s Employee’s Withholding Allowance Certificate correctly. Form W-4 worksheets are available to walk you through the process of matching tax due with withholdings. The goal here is to match these as close as possible so that there is not a large balance due or large refund. This way you have the most money in your pocket all year long.

Name and Address Changes

One other thing to keep in mind is filing with the correct names and addresses. If there are any name changes, be sure to use the correct name on your married tax returns. If there is an address change, you should change your address with the IRS by filing Form 8822 Change of Address and mailing it to the address on the form. You should also update your address with your local post office. If you have any children, be sure to include them as well on your tax return with their full name and social security number. Retirement accounts and beneficiary information should also be updated accordingly if your spouse is the beneficiary.

Considerations for Home Sales

Planning on selling your home? Your taxable gain exclusion on your personal residence doubles from $250,000 to $500,000 once you are married. This is only the case if you own the home and both you and your spouse have lived in the home the past 2 out of 5 years. If you sold your home before you were married, the $250,000 would still apply.

Keeping these tips in mind can help make your first tax season together go a bit more smoothly.

Lance Aligo, CPA, MSA, is a senior accountant at KRS CPAs, LLC, Paramus, NJ. You can reach him at laligo@krscpas.com or 201-655-7411. Check out KRSCPAS.com for more tax tips, checklists, blogs, and other resources to help you succeed.

Qualified Joint Venture between Spouses An unincorporated business jointly owned by a married couple is generally classified as a partnership for federal tax purposes. However, in 2007, there was an addition to the Internal Revenue Code that excludes from partnership status a Qualified Joint Venture (“QJV”) conducted by a married couple who file a joint return. This was enacted by Congress to alleviate what was considered an unnecessary burden of filing partnership returns where the only members of a business joint venture are a husband and wife filing a joint income tax return.

Definition of a Qualified Joint Venture

QJV is defined as any joint venture involving the conduct of a trade or business if:

the only members of the joint venture are married;
both spouses materially participate;[1] and
both spouses elect the application of QJV treatment.

A qualified joint venture, for purposes of the provision enacted in 2007, includes only businesses that are owned and operated by spouses as co-owners and not in the name of a state law entity (including a limited partnership or limited liability company). If the business is owned and operated by spouses as co-owners, it will not qualify for the election. There are special rules for married couple state law entities in community property states.[2]

Filing requirements for qualified joint ventures

As a result of utilizing the QJV election each spouse should file a separate Schedule C reporting his or her respective share of the items of the venture. There is no prescribed form for making the election. The election is deemed made on a jointly filed Form 1040 by dividing all items of income, gain, loss, deduction, and credit between each spouse in accordance with each spouse’s respective interest in the joint venture, and each spouse filing with the Form 1040 a separate Schedule C (Profit or Loss from Business).

QJV implications for real estate

Now that you have the basics of a QJV, you might be thinking, “isn’t this a real estate blog?”

You’re correct, this is a real estate blog.

If you and your spouse each materially participate as defined under the at-risk and passive activity limitations and you file a joint return for the tax year, you may elect to be taxed as a qualified joint venture instead of a partnership. By making the election, you will not be required to file Form 1065 Return of Partnership Income, for any year the election is in effect and will instead report the income and deduction directly on your joint return.

To make this election for a rental real estate business, check the “QJV” box on line 2 for each property that is part of the qualified joint venture.

The confusion surrounding a QJV typically arises in non-community property states, including New Jersey and New York, where spouses jointly own interests in an LLC. The LLC purchases a rental property, which now needs to be reported on a partnership return instead of Schedule E of the individuals’ 1040s. As noted above, the QJV will not apply to a venture that is in the name of a state law entity.

We’ve got your back

If you are considering not filing a partnership return because of the QJV election, you should contact your preparer to review the rules, especially related to rentals owned by LLCs where spouses are the only members.

With Simon Filip, the Real Estate Tax Guy, on your side, you can focus on your real estate investments while he and his team take care of your accounting and taxes. Contact him at sfilip@krscpas.com or 201.655.7411 today.

[1] IRC Section 469(h).

[2] Rev. Proc. 2002-69.

Tag: married couples

Filing Taxes as a Married Couple