My fiance is in dental school and is currently taking out student loans and will continue to take out student loans until she finishes her residency in a few years. I was wondering if it would make sense to get our marriage license sooner (sometime this year) rather than later for tax purposes. Is there any kind of tax break for incurring this debt and the ensuing interest payments? Assuming we'll be paying this debt off together regardless of when we file our marriage license, I figured it might make sense to get the marriage license sooner so we can at least get a little bit more money back on our 2020 taxes. Does this make any sense or am I thinking about this wrong? Are there any other tax breaks to be gained from getting our marriage license this year and filing jointly besides the lower combined income tax bracket we'd be in (should save us around $4,000 dollars from switching from single to joint)? And if so, how do I calculate those?
Getting your marriage license is irrelevant. Being legally married is what matters when you file a tax return. If you are married by even December 31, 2020, you will be able to file as married for 2020. If you are not legally married at the end of 2020, then you are still Single when you file your 2020 returns.
You cannot file a joint return based on having a marriage license. You have to actually be married. If you are legally married:
The standard deduction mentioned below is for 2019--and may change slightly for 2020:
If you were legally married at the end of 2019 your filing choices are married filing jointly or married filing separately.
Married Filing Jointly is usually better, even if one spouse had little or no income. When you file a joint return, you and your spouse will get the married filing jointly standard deduction of $24,400 (+$1300 for each spouse 65 or older) You are eligible for more credits including education credits, earned income credit, child and dependent care credit, and a larger income limit to receive the child tax credit.
If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. Your tax rate will be higher than on a joint return. Some of the special rules for filing separately include: you cannot get earned income credit, education credits, adoption credits, or deductions for student loan interest. A higher percent of your Social Security benefits may be taxable. Your limit for SALT (state and local taxes and sales tax) will be only $5000 per spouse. In many cases you will not be able to take the child and dependent care credit. The amount you can contribute to a retirement account will be affected. If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. ( Community property states: AZ, CA, ID, LA, NV, NM, TX, WA, WI)
If you are using online TurboTax to prepare your returns, you will need to prepare two separate returns and pay twice.
https://ttlc.intuit.com/questions/1894449-married-filing-jointly-vs-married-filing-separately
https://ttlc.intuit.com/questions/1901162-married-filing-separately-in-community-property-states
Best wishes!
Q. I was wondering if it would make sense to get our marriage license sooner (sometime this year) rather than later for tax purposes.
A. Simple answer: Yes. As you apparently already know, Married Filing Jointly (MFJ) puts you in a lower tax rate and a double standard deduction. In addition, there is a $2000 tuition credit that you claim on her tuition payments.
But taxes aren't simple. For example unmarried couples with children, in lower tax brackets come out better filing single. One usually even qualifies for Head of Household (not as good as MFJ, but better than single). The only way to be sure is prepare returns both ways and compare. This is more easily done with the download version of TurboTax rather than the on-line version. Or you could Try this tool https://turbotax.intuit.com/tax-tools/calculators/taxcaster/?s=1
Q. Is there any kind of tax break for incurring this debt and the ensuing interest payments?
A. Yes. Interest paid is deductible, up to $2500. The student loan interest deduction is an "above the line" adjustment to income. You do not need to itemize to get it. That is, you get it in addition to the standard deduction.
I'm not sure that it would make a difference. As a single taxpayer, your fiancee can deduct student loan interest (if they are paying any). You could also deduct the interest if married filing jointly.
The difference in tax owed between two people filing single and one couple filing jointly is complex. It used to be that taxes were often higher for married couples (the so-called "marriage penalty") and there have been attempts to fix it in the tax code, so I can't really say, without testing the exact circumstances, whether joint or single filing will be better overall.
If you are married on 12/31/2020, you will file as married for the whole year, so "early" only means anything if you are talking about 2021 or 2022 vs 2020.