When he marries Jane, however, his income is combined with hers. If you're maritally minded, there's no way to avoid it unless you're willing to postpone the wedding to a future year. The catch is that the right set of numbers transforms this penalty into a bonus. Suppose, for example, that you've made a killing in the market and are staring at a heap of taxable capital gains. If your intended, on the other hand, invested a bundle in Frogs R Us and is sitting on a pile of capital losses, getting spliced will allow your new spouse's losses to offset your gains, substantially reducing your combined tax bite, should you choose to realize the gains.
Similar rules apply to married couples who decide to sever their ties.
This fact has not gone unnoticed by some dual-income couples. To the surprise of no one but the IRS, an increasing number of these couples have journeyed to Haiti or some other obliging place to get a divorce in December, only to remarry in January. All that said, if you are nearing a legitimate divorce, better to do it in November or December, when you'll be able to erase a year's worth of tax penalties, than to wait until January. Postponing the nuptials will postpone the tax hit, but the only permanent way to avoid the marriage penalty is to avoid marriage, either by getting divorced and yet continuing to live together, or by foregoing the ceremony entirely. And consider that what the neighbors don't know won't hurt them.