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Clients tying the knot? Some may face a marriage tax penalty: Tax Strategy Scan

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Tying the knot? Some couples may face a marriage tax penalty
Some couples may see an increase in income taxes if they opt to get married this year, according to this CNBC article. This marriage tax penalty depends on the couples' income, state of residence and the credits or deductions they claim. Despite the changes under the new tax law aimed at scrapping this penalty for most new couples, those from high income households will owe more on taxes. The earned income tax credit could also spell a bigger tax bite for low- and modest-income households.

Despite the changes under the new tax law aimed at scrapping this penalty for most new couples, those from high income households will owe more on taxes.
A bride and groom take pictures near the Bosphorus Bridge in Istanbul, Turkey, on Wednesday, July 20, 2016.

Client filed returns. IRS compiled data. Here’s how the new law is working
New data from the IRS reveals fewer households with income between $100,000 and $250,000 received tax refunds and avoided a tax bill in the first year the new tax law took effect, says this article in The Wall Street Journal. More taxpayers also opted for the standard deduction, which nearly doubled under the 2017 law. Most of the high-income households earning less than $1 million were able to avoid the alternative minimum tax thanks to changes under the new law.

Student debt canceled? Client taxes might not be
Some candidates seeking the Democratic Party's nomination next year have disclosed plans to cancel student loan debt for many borrowers, according to this article on Fox Business. However, the plan would not free them of tax liability with the IRS. That's because a forgiven debt should be reported as taxable income.

Why clients may not want to pay off student loans early
There are reasons why paying off student loan debt early may not be a smart move. Clients who have federal student loans have borrower protections that other types of debt don't offer, and these loans charge lower interest rates. Clients will also earn more by investing the money than using it to repay the loan. Paying down the debt also reduces interest payments that enable clients to claim a tax deduction.

What some clients tried to claim on their tax returns shows they often don't know much about accounting.
February 5

College bills coming due? Here are some smart tips before clients pay
Clients are reminded to dip into their 529 college savings plan to cover tuition, fees and other education-related bills, according to this article on The Philadelphia Inquirer. They should also remember that these expenses will allow them to claim the American Opportunity Credit, which can help them save up to $2,500 per student every year. Getting help from an accountant may be needed as tax years and school years sometimes don't match.

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