With a booming wedding industry, I sometimes wonder how it’s even possible that our country is in a recession at all. Now that the average cost of a wedding hovers around $30,000, you’d think that the spending induced by weddings could single-handedly pull our country out of its economic troubles (then love really could conquer all).
But weddings aren’t just good revenue-makers for vendors, they also have more tax implications than people realize when they’re planning their big day. Here are four instances where taxes may affect your wedding—for better or for worse.
With prizes ranging from a free tuxedo rental, to free photographer services, to even an entirely free wedding, brides near and far know that wedding giveaways are abundant and will do just about anything to get something free or discounted for their expensive day.
But are these prizes really free?
Not if Uncle Sam has anything to say about it: Anytime you win a prize, you have to pay taxes on that prize. The IRS considers any prize to be “other income” for you and require that you report it on your tax return (you’ll likely receive a 1099 form for large prizes). Winners won’t have to worry much if their prizes are small. However, those that win prizes worth $10,000, $50,000, or even $100,000 may need to re-consider the amount of taxes they’ll have to pay on said prize before they claim their winnings. Taxes on a $100,000 prize could easily be more than you had initially planned to spend on a wedding in the first place!! Turns out, there really is no such thing as free.
Sales Tax: The Wedding Budget Buster
When you’re making the first draft of your wedding budget, it’ll probably include all the must-have items like a cake, attire, reception hall rental fees, disc jockey fees, catering costs, costs of the bar, and flowers. Not too many brides and grooms forget those things.
Guess what? Most of the items in your wedding budget are subject to sales tax (there are some exceptions, for example, some services or building rentals aren’t taxed).
Sales tax on a $6,000 caterer bill could easily reach or exceed $500. If you start spreading a sales tax percentage across your entire wedding budget, your total tax bill could reach a couple thousand dollars or more. Taxes can end up being a significant amount, so don’t forget to include an estimate in your wedding budget.
Consider Charitable Contributions
If you’re having your ceremony at a religious site, it might be worth investigating whether your ceremony fees could qualify for charitable contributions.
Alternatively, if you are a member of the church where you will get married, talk with the church administrator to see if there is a donation minimum for members so that you won’t have to pay a ceremony fee. If you just have to increase your donations by a couple hundred dollars in order to avoid the ceremony fee, it might be worth it considering you’ll be able to use your contributions as a tax write-off and contribute to a good cause all in one fell swoop.
Are you using the hall or banquet room at your church for your reception? The rental fee could be a write-off. Likewise, if your church needs to purchase additional equipment (tables, chairs, etc.) to host your event, consider purchasing the equipment for them as a donation and using the expense as a tax write-off.
Will Mom and Dad Be Taxed?
Age-old tradition says that the bride’s parents pay for the wedding and reception, and the groom’s parents pay for the rehearsal dinner. In this day and age, those rules are bending a bit, but many parents still fork over quite a bit of money to help pay for some of the wedding, if not all of it.
So, will your generous parents be taxed on their gift? Or, is the money even considered a gift?
It really depends on whether your parents give you the money straight-up to pay for the wedding or if they pay for the wedding out of their own pockets:
- If you parents pay for the wedding right out of their pockets, various arguments say that they won’t be taxed since this isn’t technically a gift and it can’t be easily traceable to one person.
- If your parents write a check to you for a lump sum to pay for the wedding, this is most definitely a gift.
Luckily, the thresholds for gift taxes are fairly high, so it’s unlikely that your parents will be taxed on the wedding money that they have gifted you. Since they can split the gift between themselves as givers as well as split the gift between you and your future spouse as receivers, they can give a pretty significant amount before they’ll be hit with the gift tax. So, unless you’re having an ultra-extravagant, celebrity-like wedding, chances are that your parents probably won’t be taxed on the money they give you for your big day.
The Bottom Line: Don’t Forget Uncle Sam
When you’re planning for your wedding, it’s important to be conscientious of how taxes might impact your decisions. Don’t let the tax-side of weddings ruin your big day, just be wary of it in the planning stages.
Have you ever won a big wedding giveaway? What was your experience with the prize and paying taxes on the prize?