Know Someone Getting Married?

Tips for every bride and groom

Summer is a popular time to tie the knot. Planning for the event takes hundreds of hours and thousands of dollars. Often overlooked in the craziness of the event are important tax and financial topics. If you are planning to get married in the near future or know of someone who is, here are some things to consider.

Wedding proposalNotify Social Security. Notify the Social Security Administration (SSA) with any name changes. The IRS has a name match program with the SSA and will potentially reject deductions and joint filing status if the name change is not made timely. You do this by filing Form SS-5.

Selling a home? If selling one or two residences, review the impact of capital gain tax laws and how they apply to your situation. This is important if one of you has only been in a home for a short time or if the home has appreciated in value.

Update your address. Update your address with the IRS if either of you is moving. You do this with IRS form 8822. Also change your address at the postal service.

Notify your employers. Also change your name and addresses with your employer to ensure your W-2s are correctly stated. Recalculate your payroll withholdings and file a new Form W-4.

Beware the marriage penalty. If both newlyweds work, your combined income could put you into a higher tax bracket. This phenomenon is referred to as “the marriage penalty”. On the other hand, marriage could also reduce your tax burden. Because of this, now is a good time to conduct a tax forecast.

Review legal documents. Ensure legal titles are as you wish them after you are married. This includes bank accounts, titles on property, credit cards, insurance, and wills.

Beneficiary statement update. Also check any retirement savings plans like 401(k)s and IRAs. The beneficiaries on these accounts must also be updated.

Review employee benefits. Review your employee benefits and make the necessary changes in health care, insurance, employee retirement accounts, pensions, and tax-preferred spending accounts. Marriage is a qualified event for most employers to allow you to make mid-year changes.

Talk about it. If you have not already done so, spend some time talking about how you will be managing your financial affairs. Who will be paying the bills? Who will be managing retirement accounts and investments? How will spending be managed? What bills and debt exist? Developing a plan and understanding how this will be handled can help reduce misunderstandings and future disagreements.

In the News: IRS Data Breach

Data breach

Was your taxpayer identity stolen?

The IRS recently announced that over 100,000 taxpayer identities and prior tax return information was stolen from their “Get Transcript” application.

The thieves used stolen Social Security Numbers, names and addresses to get past the IRS security walls. The thieves then got copies of tax information on file at the IRS.

What next

Thankfully, the IRS knows which taxpayer records were stolen and will be sending out announcements to those of us who are impacted. In the meantime, the IRS Get Transcript application has been temporarily shut down. Should you be impacted by the breach, the IRS will offer you free credit monitoring and will flag your tax account for potential theft risk to protect your account in the future.

The Chances of Being Audited

2014 audit statistics show changes

Every year the IRS publishes the statistics of the number of tax returns they are examining. Provided here are the last three years of published information and a look back to 2008 to see any trends:

Percent of Individual Tax Returns Audited

Fiscal Year 2014 2013 2012 2008
All Individual Tax Returns 0.86% 0.96% 1.03% 1.00 %
No Income (AGI) 5.26% 6.04% 2.67% 2.15%
Income under $25,000 .93% 1.00% 1.05% .90%
$25,000 – 50,000 .54% .62% .70% .72%
$50,000 – 75,000 .53% .60% .64% .69%
$75,000 – 100,000 .52% .58% .64% .69%
$100,000 – 200,000 .65% .77% .85% .98%
$200,000 – 500,000 1.75% 2.06% 1.96% 1.92%
$500,000 – $1 million 3.62% 3.79% 3.57% 2.98%
$1 million – $5 million 6.21% 9.02% 8.90% 4.02%
$5 million – 10 million 10.53% 15.98% 17.94% 6.47%
$10 million and over 16.22% 24.16% 27.37% 9.77%
Note: These audit rates are stated as a percent of total tax returns in each Adjusted Gross Income (AGI) class as claimed on individual tax returns. In general the examinations are for tax returns filed in the previous calendar year. Source: IRS Data Books

Observations:

Arrow Overall, you have less than a 1 out of 100 chance of being selected for an audit. The .86% audit rate is down .10% versus 2013.
Arrow Audit rates are down for all income levels versus 2013 due to resource constraints per the IRS. The IRS claims this translates into the potential loss of $2 billion in tax revenue. However, the audit rates for those with incomes over $500,000 is still up dramatically when compared to 2008.
Arrow The IRS is continuing its focus on returns with no AGI or negative income. This group’s 5.26% audit rate is significantly over the 2.15% audit rate in 2008.

Having good records

Always retain your tax records and support documents for as long as they may be needed to substantiate your tax return. This is usually three years after the filing due date or when the tax return was actually filed (whichever is later). Include any state record retention requirements as you review when it is safe to destroy old records. Remember some records need to be retained indefinitely. This includes, at minimum, copies of original tax returns, legal documents, confirmation of asset purchases, asset sales, and real estate transactions.