As a couple in your mid-30s, reviewing your tax return is more than just a yearly chore. It’s an opportunity to take control of your finances, identify savings opportunities, and plan for future goals. Here are key areas to focus on to ensure you're optimizing your return while staying compliant with tax laws.
1. Filing Status
Your filing status significantly impacts your tax liability. Married couples can choose between Married Filing Jointly (MFJ) or Married Filing Separately (MFS).
- MFJ: This option generally provides the best tax advantages, including higher income thresholds for tax brackets and access to valuable deductions and credits. Filing jointly is typically more advantageous for most couples, as it often results in a lower overall tax liability compared to filing separately.
- MFS: This option might make sense if one spouse has significant medical expenses, deductible student loan interest, or other itemized deductions subject to income thresholds. This filing status also offers protection from your spouse’s fraud, unpaid debts, errors, and generally safeguards your interest during divorce proceedings. However, this does disqualify people from claiming key credits such as Earned Income Tax Credit and other educational credits.
Evaluate your financial situation each year to confirm you’re using the most advantageous status.
2. Income Reporting
Ensure all income sources are accurately reported, including:
- W-2s and 1099s: W-2 income is reported on Line 1a of the 1040. Double-check for accuracy and inclusion.
- Investment Income: Verify dividends, interest, and capital gains from brokerage accounts. These are reported on Lines 2 and 3 of the 1040.
- Equity Compensation: Ensure you have the appropriate tax withholding dependent on your marginal tax bracket to avoid liability surprises or underpayment penalties.
- Side Hustles: If either of you has freelance income, report it on Schedule C and consider deductions related to your side business. Popular side hustles include:
- Freelance graphic design, writing, or programming
- Selling handmade goods on platforms like Etsy
- Offering tutoring or educational services
3. Retirement Contributions
Your mid-30s are a critical time for building your retirement nest egg. Tax returns provide insights into whether you’re maximizing retirement contributions:
- Traditional IRA or 401(k): Contributions to these accounts may reduce taxable income.
- Roth IRA: Roths offer tax-free growth potential, but contributions are not deductible. Ensure your Modified Adjusted Gross Income (MAGI) falls within the allowed limits. For 2025, the contribution limit phases out for married couples filing jointly with MAGI between $236,000 and $246,000. If you fall into this bucket, consider a Backdoor Roth IRA strategy to bypass the income restrictions.
- Backdoor Roths: These involve making contributions into a Traditional IRA and converting them to your Roth IRA. You may consider opening a new Traditional IRA if you have pre-tax funds in an existing IRA so as to avoid the Pro-Rata Rule (a pro-rated amount of pre-tax representation of the IRA will be converted along with the new after-tax contributions).
- If you’re self-employed, consider contributing to an SEP IRA or Solo 401(k) which both allow higher contribution limits.
4. Deductions
Itemizing deductions can often save more money than taking the standard deduction. Key deductions to review include:
- Mortgage Interest: This will result in a significant deduction if you’re a homeowner.
- State and Local Taxes (SALT): This is currently capped at $10,000 but is likely to change under the new presidential administration.
- Charitable Contributions: Many young professionals may not make sizeable enough donations to utilize them for a meaningful tax offset. Instead, consider “bunching” donations into a single tax year to exceed the standard deduction threshold and maximize the tax benefit.
- Medical Expenses: These are only deductible if they exceed 7.5% of your AGI.
- Student Loan Interest: If either of you is still paying off student loans, you can deduct up to $2,500 of interest paid, subject to income limits. Be mindful that as your income grows, you might phase out of this deduction.
Compare your itemized deductions against the standard deduction for your filing status to determine the best option.
5. Tax Credits
Tax credits reduce your tax liability dollar-for-dollar, so ensure you’re claiming all that apply:
- Child Tax Credit: Worth up to $2,000 per qualifying child under age 17
- Child and Dependent Care Credit: Helps offset childcare expenses
- Lifetime Learning Credit: Up to $2,000 for education expenses, useful if one of you is pursuing further education
Income phaseouts are in place for each of these credits and eliminate high earners from utilizing them. However, in cases where someone enters graduate school or is experiencing prolonged periods of unemployment, these credits can be beneficial.
6. Health Savings Accounts (HSAs)
If you’re enrolled in a high-deductible health plan, an HSA offers triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses. Ensure contributions are accurately reflected on your return and consider maxing out your HSA each year. 2025 contributions limits are $4,300 for individuals, $8,550 for couples, and $1,000 catch-up for people 55 and older.
7. Capital Gains and Losses
If you’ve sold investments, review your Form 1099-B to ensure capital gains or losses are accurately reported. Consider tax-loss harvesting strategies to offset gains and reduce your taxable income.
8. Tax-Advantaged Accounts for Kids
If you have children, consider their future education expenses:
- 529 Plans: Contributions are not federally deductible, but many states offer tax benefits. Verify you’ve maximized these accounts for tax-free growth toward future education costs.
9. Self-Employment Considerations
If either spouse is self-employed, ensure proper reporting of business income and deductions. Key areas to review:
- Home Office Deduction: If you work from home, a portion of your rent, utilities, and internet may be deductible.
- Health Insurance Premiums: These may be deductible if not covered elsewhere.
10. Review for Errors
Errors on your tax return can lead to delays or audits. Common issues to watch for:
- Incorrect Social Security numbers for you, your spouse, or dependents
- Missing signatures if filing by mail
- Typos or transposed numbers
11. Plan for Tax Law Changes
Tax laws evolve, and staying informed can help you plan effectively. For example, temporary changes to credits or deductions may affect your return. Many adjustments are expected to be made with the new presidential administration. Particularly homeowners are looking at a potential rise in the SALT cap (essentially how much property tax can be deducted). Work with a tax professional to understand how new legislation might impact your situation.
12. Consult a Professional
Your financial situation may become more complex in your mid-30s due to factors like higher earnings, investments, and family changes. A CPA or tax advisor can provide personalized advice and ensure your return is accurate and optimized.
Final Thoughts
Taking time to review your tax return thoroughly is an investment in your financial future. By focusing on these key areas, couples in their mid-30s can reduce their tax liability, avoid costly mistakes, and set the stage for long-term financial success.
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