The Tax Benefits Of Getting Married
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Getting married can result in plenty of financial perks, including better tax benefits. For example, more deductions and less paperwork are just two of the many tax advantages of getting married. Below are some of the key ways in which having a spouse can positively impact your tax return.
Once you’re married, you can file your taxes jointly with your new spouse. This is generally much simpler than filing two separate returns, even though you can still opt to do that as there is a filing status for those who are married but wish to file separately. If you are married, filing jointly can often result in more tax breaks than filing separately. (To learn more about tax filing statuses, see Determining Your IRS Filing Status On Your Federal Income Tax Return .)
If you’re just about to get married or become engaged, consider the following: if you legally marry on any day in the year (even December 31), you’re considered married for the entire tax year. That means you get to reap the benefits of filing jointly even if you were only married for part of the year.
There’s actually a marriage bonus included on a joint tax return. This is an extra tax break that most couples will qualify for. You’ll basically pay less income tax with this bonus than if you were single. However, there is one exception. When both spouses have substantial and fairly equal incomes, they may end up paying a marriage penalty, meaning that their income taxes will be slightly higher than if they were single. Fortunately, most couples don’t fall into this category (especially those with very unequal incomes) and there have been some changes made to reduce the marriage penalty for those who do.
Home Sale Profits
A major change that occurs when you get married is that you can earn a much larger tax-free profit on a home sale. Most single individuals owe taxes on any home sale profit of more than $250,000. However, married couples generally get double the profit tax-free, with no taxes owed on any profit of $500,000 or less. Just be aware that both spouses must have lived in the home that was sold for at least two years and at least one spouse must have owned the home for at least two years in order to receive this tax break.
If you’re married and file jointly, both spouses can make a contribution
to an IRA, even if one spouse doesn’t have taxable compensation. To do this, the working spouse just has to set up a spousal IRA contribution for the non-working spouse. This special allowance is made possible by the fact that you filed a joint tax return.
An estate worth any amount can be left to a surviving spouse with no federal estate taxes owed as long as the spouse is a U.S. citizen. (For more information on estate taxes, see A Guide To Federal Estate Taxes .)
Tips To Keep In Mind
There are a few things you should remember if you want to reap the benefits of filing jointly, including:
- Name Changes: Your legal name must be used on your tax return. If you wish to change your name after marriage, make sure you file a Form SS-5 with the Social Security Administration by visiting a local office or their website. Most name changes can be verified in about two weeks.
- Withholding: Once you’re married, you and your spouse each need to request a change in your withholding from your paychecks. Your withholding allowances will depend on your personal circumstances, but keep in mind that each allowance is worth more for the higher earner. (To learn more about payroll withholding, see A Tax Guide To Payroll Withholding .)
- Benefits: You’ll also want to review your work benefits including health care coverage. Married couples can usually choose the better of their plans to be covered under, and the spouse being covered by their partner’s plan may be able to get a different tax-favored benefit at work instead.
- Penalties: There’s one big drawback to filing jointly, and that’s the fact that if your spouse has any tax penalties or underpayments, you’ll also become liable for those errors or misdeeds. If they can’t collect the amount from your spouse, they may be able to come after you for those fees, so if this is an issue for your marriage you may want to file separately. Keep in mind that there are safeguards put in place by the IRS for people who did not know about their spouses illegal activity.
Now that you know the many tax benefits of getting married, it’s time to put those to use on your next tax return. If it’s your first year filing a joint return or filing after getting married, consider talking to a tax professional to ensure that you get the best tax savings possible.Source: www.candofinance.com