The Tax Advantages of Being Married
There are many good reasons for being married. You get a companion, true love being among the best. Well, you also get a tax benefit as opposed to the period you were single. This is ironic since no one would insinuate that tying the knot would simply lead to the tax blessings of the Internal Revenue Service. Nevertheless, the tax code in the US does provide a few wedding gifts to those who say, “I do.” The following are the key tax benefits enjoyed by married people.
No marriage penalty
For years, taxpayers have continually complained about the marriage penalty. Mainly, the penalty occurred when spouses earned similar salaries. As a result, the salaries would be combined. This would push the couple into a higher tax bracket than they would have occupied if they were still single. The US Congress took steps to reduce that penalty. Now, the joint tax bill for married couples remains closer to the combined total they would owe as single taxpayers.
Depending on the level of income, there still can be a marriage penalty. However, if the taxpaying spouses have substantially different salaries, the lower one can pull the higher one down into a lower bracket. Consequently, this will lead to a reduction of their overall taxes.
A spouse may be a tax shelter
It is worth noting that the negative numbers of one person in a marriage can help both spouses. Nonetheless, this does not mean that one should seek out a partner specifically because he or she has a business that is losing money. The spouse who is losing money may not take advantage of some deductions, including those dealing with the house. However, the spouse who is making money may use the loss as a tax write-off. This is also applicable in the event of high medical expenses.
A jobless spouse can have an IRA
It is possible for a spouse may contribute to an individual retirement account (IRA), even if he or she does not earn. In addition, the time at which the IRA benefits are phased out based on income is dramatically higher for married couples than they are for single people. A spouse who could not pay into an IRA when single can use the joint income to fund the other one. Moreover, one can potentially put away thousands of dollars for retirement while receiving substantial tax benefits.
Couples can “benefit-shop”
If both spouses have benefit packages from their respective jobs, they can select the most valuable benefits from the two plans. Furthermore, the most appropriate mixture of benefits from two plans can increase a couple’s tax savings in other ways. Take childcare as an example. If a couple has dependent children, they use benefit plans such as dependent care plans. Frequently, the case is that one of them may not have such a plan, but the other one does.
Greater charitable contribution deductions
Based on the level of income, there is a limit to the charitable contributions that may be deducted annually. Being married can raise this limit. If one of the spouses makes very large charitable contributions, the excess contributions are carried over to the following year. In a jointly filed return, one can add the spouse’s income to determine the current deductible amount. In turn, this will save the couple a considerable amount in taxes.
Marriage can protect personal assets
Marriage can help a wealthy person protect the assets he leaves behind after death. Under Federal Tax Laws, one may leave any amount of money to a spouse without attracting estate tax. This exemption protects the deceased’s estate and assets until the spouse dies.
Filing can take less time and expense
Filing a joint tax return is simpler than filing individual returns. In addition, filing just one tax return presents a good chance to easily assemble the paperwork. The cost of having the paperwork processed will be less than when the filling by both spouses is done independently.
It is important to note that even as there are many tax benefits of being married, some drawbacks exist as well.
First, you are fully responsible for every number that is in the tax returns once you sign the joint return. If your spouse misrepresents a figure, the other person is equally liable for the consequences.
This implies that one is responsible for the spouse’s mistakes or deliberate omissions. However, you may be acquitted if they happened in the years before you married or if you can prove that you did not know about them.
It is hard to reach a higher minimum percentage of income necessary to be able to deduct medical expenses. It becomes hard given the combined income unless one or both of you had significant expenses.
Finally, if there is a garnishment for an unpaid loan or child support against a spouse, the IRs may delay or block a tax refund.
You can contact us for more information about tax issues affecting married people. We shall be glad to give you a hand.
