Marriage is a sacred bond, something two people intend to share for their entire lives. Tied in with tying the knot are a myriad of responsibilities, opportunities and advantages, particularly in filing taxes. Marriage is something that comes with excellent advantages when filing taxes. Filing jointly can help reduce income tax percentages, and is generally an easier method to file. Filing separately has advantages if a partner is facing large debt that meets a certain threshold. Aside from these two distinctions, there are other tax implications to marriage.
When married, you can choose to file jointly or separately. Both have different circumstances behind the rationale for filing one way or the other. Filing jointly is best when one spouse makes significantly more than the other. The reason behind this is that the joint sum will likely be taxed at a lower percentage than the higher earning spouse’s individual filing. In general, most couples utilize the joint option. It is less paperwork and likely costs less than two individual filings. The occasions that call for separate filings are situations where some sort of large debt has been incurred by one partner. If one spouse has large medical bills that meet the deduction threshold, then filing separately may be beneficial. It must be noted that this affects the other spouse’s return, and it might not necessarily be better for the other partner. Careful consideration is required.
If both partners receive benefits from their employer, they are able to pick out the best benefits from both plans to utilize. For example, if a couple has a dependent child, and one benefit plan offers dependent care plans and the other doesn’t, the couple can choose to use the care plan without committing to the entirety of the benefit package. The right combination of benefits can increase a couple’s tax savings.
Filing joint returns can yield benefits in terms of a couples IRA, even if one spouse is out of work. The jobless spouse will still be able to contribute to an IRA. Additionally, the point where IRA benefits are phased out based on income are substantially higher for married couples than they are for single filers, meaning that a couple can put large sums of money away in a way they’d not be able to filing singularly. Along with these benefits, IRAs can have implications with the aforementioned benefit shopping. For example: if one spouse can have pre-taxed money deposited into an IRA, which means the deposit reduces taxable income, but the other spouse cannot, they can put family money into an IRA for the second spouse too, essentially double-dipping in their benefits.
There is a limit to charitable contributions that can be deducted in a year based on income. That limit can be elevated with a spouse. If one were to make a contribution that exceeds 50% of their income, the excess charity would be carried over to the next year. Having a spouse can raise that limit, therefore reducing current taxes. Marriage also allows wealthy people to protect their assets upon death. Under current federal tax laws, a deceased spouse can leave any amount of money to their partner without generating estate tax, therefore protecting the deceased’s estate until the other spouse passes away.
The benefits of marriage are clear. Of course two people should not get married solely for the tax benefits, but it surely creates good incentive to live life as a married couple. Certainly, some people’s circumstances will differ and many of these benefits may not be applicable to them or their family, but the majority of Americans benefit from these different advantages. Having the knowledge and ability to utilize these benefits is equally important as their existence themselves. Always consult with a tax professional regarding the best way to file for individual circumstances.
Author: Tyler Nolan, Staff Writer Encompass Accounting, Inc. Twitter: t_nol_