Tax Considerations for Married Couples

The IRS allows married couples to file either joint or separate returns. Each filing status has advantages and disadvantages. Since the benefits of each are based on several factors, the preferred status may change from year to year. Couples should consult a financial professional to determine which status is most beneficial for them. That being said, here are a few things for married couples to consider when filing taxes.

Filing jointly applies only to legally married couples. When a couple files jointly, their combined income is used to calculate deductions and tax rates. Married couples have a much higher threshold in the progressive tax brackets than single filers.

In 2020, joint filers paid 10 percent on their first $20,000 of earned income, which was nearly double the threshold of single filers. Taxpayers filing jointly could also combine their standard deductions. Couples filing together in 2021 could earn $25,100 tax-free.

The IRS limits certain deductions to married couples filing jointly. For example, only joint filers can qualify for the Earned Income Credit or deductions for education-related expenses. Married taxpayers who file jointly can also contribute to Roth IRAs as long as their income is under the stated threshold. In 2021, this was more than $200,000.

For most married couples, the above-mentioned benefits make filing jointly the better option. Filing jointly is especially beneficial when one person has no income or a much smaller income than their spouse. Since deductions and credits are shared equally, the higher-earning individual pays less tax overall than if they filed separately.

There are, however, several situations in which filing separately can be beneficial. If, for instance, both spouses are high- earners, combining their incomes may increase their tax liabilities, even after taking into account the qualifying deductions.

Couples may also choose to file separately to qualify for income-based deductions or lower student loan rates. For example, the IRS allows individuals who itemize their expenses to deduct a percentage of medical expenses. However, this deduction applies only if the medical costs are greater than 7.5 percent of the filer’s adjusted gross income. Filing separately reduces the adjusted gross income, which can help the filer qualify for the medical deduction. Additionally, filing separately allows the other spouse to take the standard deduction, even if their partner chooses to itemize.

Filing separately can also benefit individuals on income-based student loan repayment plans. Federal loan providers use only the adjusted gross income from the spouse’s tax return to calculate the minimum payment.

Americans abroad married to non-US citizens who have no connection to the United States can file separately. Many expatriates choose this option so their spouses do not become liable for taxes in both their country of residence and the United States. Americans married to nonresidents are the only married individuals who can file as head of household.

Finally, many couples choose to file separately to protect their financial interests. If one spouse owes child support or taxes, filing separately can prevent the other spouse’s tax refund or other assets from being seized to pay the debts.

Identifying the most suitable filing status can be as simple as running both options through a tax return simulator. Couples with more complicated financial situations should consult a tax preparation professional.

Expenses in Retirement Planning

Planning for retirement often includes creating an estimated budget for housing, living expenses, and other costs like travel or hobbies. However, there are many expenses that people fail to include in their calculations.

In some cases, people may not anticipate cost increases or how leaving the working world changes how some expenses are calculated. Omitting these costs from a retirement plan can put individuals in financially precarious situations. For this reason, financial advisors suggest their clients research the often forgotten expenses and include space for these costs in their planning.

Healthcare is one of the biggest sources of unexpected costs in retirement. While many other expenses in life decrease with age, health care costs tend to go up. While many seniors qualify for low or no-cost care through Medicare, there are some expenses that this government program will not cover.

For example, oral and vision care is not included under basic Medicare. Retirees must supplement their coverage with a private plan through the Part C Medicare Advantage program to access routine eye and dental exams.

Even with this additional insurance, the costs for equipment like hearing aids are not covered in full. In these cases, retirees should also have a cushion set aside for out-of-pocket insurance costs. If individuals can afford the premiums, a Medigap insurance policy can mitigate some uncovered healthcare costs.

Long-term care is another health-related expense that can be costly if not planned for. Seven out of 10 seniors will require long-term care at some point in their retirement. This includes the cost of around-the-clock assistance, and in some cases, outpatient medical care.

If a family member cannot provide this care, hiring a home health aid can cost thousands of dollars per month. Individuals can protect themselves by purchasing long-term care insurance. Since the premiums for these policies are higher for older people, it is best to start a policy before reaching 65 years of age.

Family changes can also cause unexpected changes to an individual’s retirement plan. For example, grandparents may gain custody of their grandchildren due to illness or other circumstances. Further, adult children may encounter a financial crisis and need help from their retired parents.

Experts advise retirees to set aside a pool of savings to pay for gifts and financial support for their children and grandchildren. If this is not possible, families should set strict boundaries on financial expectations.

While most homeowners are aware of the ongoing maintenance costs and plan for this in their retirement budget, many people do not anticipate the cost of retrofitting a home to accommodate aging residents. Retirees may need to pay for structural changes to the house, such as widening doorways or building a bedroom on the lower floor, to remain in their home.

Changes in homebuilding standards can also add unexpected costs. Homeowners should get a thorough inspection of their home a few years before retirement to assess if the property is still up to code. If not, they will need to incorporate the costs of any mandatory updates into their retirement budget.

Four Steps to Creating an Elder Care Plan

Elder care planning refers to a strategy for handling all personal and financial affairs of senior citizens during the last stages of their lives. One major part of elder care is long-term care, a range of services that can help the elderly when they are no longer able to perform everyday activities on their own. Unfortunately, long-term care and other elder care issues are often avoided by families and only discussed when they arise, often after catastrophic events take place.

Planning in advance for elder care can prepare families for unexpected situations. Here are some tips to help you develop your elder care plan:

Take care of the paperwork.

One of the first steps in elder care planning is making sure all legal documents are in order. While health and financial paperwork can be uncomfortable to discuss, it is important to make sure the crucial information is organized and a person is chosen as an advocate.

Some of the most important documents to take care of are wills, trusts, health care power of attorney, durable financial power of attorney, investments, health insurance, and long-term care insurance. Some people may also choose to make burial arrangements and discuss end-of-life wishes with their close family members.

While these discussions can be difficult, planning in advance can make life easier for both the elderly and the family members that will take care of them.

Create a care plan and a personal care agreement.

A care plan can help both family caregivers and long-term care providers meet the needs and preferences of seniors. Having a care plan will make it easier for caregivers to organize daily tasks and duties. The care plan should be reviewed regularly and updated as new needs arise.

Taking care of an elderly parent for a long time can become a financial burden for caregivers. To mitigate this issue, family caregivers can create personal care agreements with the help of an elder law attorney to arrange payment for all the services they provide. This document is extremely important if the care recipient needs to file a Medicaid application.

Choose a care team.

Depending on the situation, caregivers may end up needing to dedicate a lot of time to taking care of elderly parents or relatives. Before any assistance is needed, family members should have a conversation and decide together who will be part of the care team. The team can involve relatives, close friends, and even neighbors, though it is usually limited to close family members.

While it may seem unnecessary to have this discussion when no assistance is needed, defining the care team helps ensure your loved one’s needs and preferences will be met. Unexpected events can happen, and family members may suddenly need to take care of their loved ones. Having a plan before it’s needed will make sure you don’t go into caregiving blindly.

Get professional help.

While the first step should always be a discussion between caregivers and care recipients, it can sometimes also be helpful to get professional assistance from elder care professionals and long-term care services.

From elder care attorneys to social workers and in-home care companies, there are many professionals that can help you take care of your loved ones. You can get professional help with financial planning, which is a significant part of elder care. 

Ida Victims in NJ & Other States

The founder and owner of Chatham, New Jersey-based Belott & Company CPAs LLC, Richard Belott has worked as a certified public accountant for nearly three decades. Throughout the course of his career, Richard Belott has provided financial services as well as retirement and tax planning for numerous clients across New Jersey.

Hurricane Ida victims in New York, New Jersey, and Mississippi now have until early January to submit federal individual and corporate tax forms for tax payments. Any location identified by the Federal Emergency Management Agency as qualified for individual or public assistance will be eligible for aid.

Various filing and payment deadlines that were set to begin on September 1st have been postponed as a result of the relief. Individuals and companies that were affected have until January 3 to complete returns and pay taxes that were due during this period. Individuals who have an extension to submit their 2020 tax return that expires on October 15 also have until the 3rd of January to do so.

Quarterly anticipated income tax payments, which are due on Sept. 15, and quarterly payroll and excise tax reports, which are typically due on Nov. 1, are also subject to the Jan. 3 deadline. The extension also applies to calendar-year-operating tax-exempt organizations that had a valid extension that was set to expire on Nov. 15.

Any taxpayer with an IRS address of record in the disaster region receives automatic filing and penalty relief from the IRS. If an impacted taxpayer gets a penalty notice for late filing or payment with a due date that falls within the postponement period, the taxpayer may contact the number on their notice to have the penalty waived.