Seven Tax Advantages for Married Couples
Along with fondue sets and fine china from friends and family, newlyweds receive special wedding gifts from the IRS in the form of discounts when filing taxes.
This article will explain the advantages and disadvantages that married couples face when it comes to paying tax to Uncle Sam.
The Seven Ways that Marriage Can Bring Tax Savings
1 – One Spouse Pulls the Other into a Lower Tax Bracket
One of the greatest benefits of couples filing their tax returns jointly is that when one partner earns significantly more than the other, the spouse with more income may pay less than he or she did when filing individually.
Simply being married may also change a person’s tax bracket. Although specifics change with the tax year, the 15% income tax bracket is typically higher for married people than it is for singles. In 2010 for example, married people earning up to $68,000 paid only 15% in taxes, whereas single people were bumped out of the 15% bracket when they earned more than $34,000.
2 – One Spouse May Serve as a Tax Shelter for the Other
If one spouse has a failing business, a couple can benefit from filing taxes jointly. This is because the spouse who is losing money will be unable to take advantage of certain tax deductions, especially if their business has been losing money for a few consecutive years. To offset this situation, these deductions can often be claimed by the other partner. Meanwhile, the second partner can use the business loss as a tax write-off. He or she can also write off expensive medical bills.
3 – Married Couples Can Receive Higher Deductions for their Charitable Donations
When filing taxes,each individual taxpayer can deduct $5,600 for charitable donations. In contrast, a married couple filing jointly can deduct up to $11,600. Furthermore, if one spouse makes large donations but does not earn at least double that amount, their excess contributions can be carried over for a deduction the following year.
4 – Married Couples May Have Double the Options for Job Benefits
When both spouses receive benefit packages through employment, they then have the option to choose the best benefits of each plan. For instance, a couple that pays for child care might be offered two dependent care plans that have different tax implications. One spouse might also have the option of establishing an HRA or healthcare reimbursement account. This would let the family pay for their medical care tax-free.
5 – A Jobless Spouse Can Contribute to an Individual Retirement Account (IRA)
Even if one spouse doesn’t work for a wage, he or she may contribute to an IRA. Each year, this permits the couple to save up to $5,000 for their retirement without having the money subject to taxation. Furthermore, the money in IRA accounts can usually be withdrawn tax-free.
Another IRA-related benefit for spouses is a higher threshold for phase-outs. In other words, IRA benefits are phased out as funds increase, but the point at which benefits phase out is much higher for married people.
6 – Marriage Protects Estates from Taxation
Marriage can help a wealthy person shelter his or her assets upon death. Federal tax laws permit leaving an unlimited amount of money to a spouse without it being subject to the normal estate tax. The estate is thus protected until the second spouse passes away.
7 – Filing Taxes Jointly Requires Less Time and Money
Logic dictates that filing one tax return takes less time than filing two tax returns. A couple’s tax preparation expenses are also reduced by joint filing.
Tax Drawbacks of Marriage
While marriage allows for a number of tax-related benefits, it doesn’t provide a pure honeymoon with the IRS. Here are several disadvantages of being married at tax time:
· A married person who files jointly has the added responsibility of being held accountable for their spouse’s tax errors or deliberate misreporting.
· The income disadvantaged in particular might end up paying higher taxes when filing jointly. This is because the earned income tax credit is lower for two-earner households than it is for single-earner households.
· Couples filing taxes jointly might not reach the higher minimum percentages required for medical expenses and miscellaneous expenses.
· One spouse could be penalized if the other’s wages are garnished for child support or another debt. This could reduce or eliminate a tax refund.
Conclusion
Sometimes there’s reason to grumble about marriage tax penalties. This is especially true when both partners are in the lowest tax bracket or when one is having wages garnished. That being said, the fact is that most married couples can enjoy a lower overall tax burden by filing taxes jointly as described above.
About the Author: Bob Goren is an accountant and independent advisor for people filing taxesin the US.
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