When deciding to tie the knot, you don’t often sit down and work out the tax benefits for married couples. However, as you consider your finances as a couple, one of the items you need to figure out is how to manage your tax bill in a way that benefits your situation.
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As you consider how to file your taxes and manage your money as a couple, here are some of the tax benefits that come with being married:
1. Income Disparity = Lower Tax Bill
One of the biggest advantages married couples see is a lower tax bill in cases where there is a large income disparity. Filing jointly can change your overall marginal tax rate as a couple as compared to what it might be when filing single.
Let’s say your spouse makes $35,000 a year, falling into the 12% bracket in tax year 2023. You, however, make $250,000, putting you in the 35% bracket. Together, though, your combined income of $285,000 puts you in the 24% bracket. In dollar amounts, you pay less in taxes together than you would if you were living together but not married.
2. Higher Threshold for Some Tax Breaks
Some tax breaks come with income phaseouts. That makes it harder for you to take a full deduction if you’re hoping to lower your tax bill. The child tax credit and student loan interest deduction are two examples of tax breaks that come with income phaseouts.
However, if you’re married filing jointly, you get a little more room to claim those tax breaks because the phaseouts begin at a higher income. So, if you might not have been eligible for the full deduction to your traditional IRA because of your income, being married might suddenly make you eligible to fully deduct your contributions.
3. Spousal Contributions to an IRA
Looking for another deduction, but not sure where you’ll get it? If your spouse doesn’t have earned income, you can still open an IRA in their name and make tax-deductible contributions. This provides you with one more opportunity to get in another tax break—and do it within the higher phaseout limit provided to married couples.
Realize, though, that the money you contribute to a spousal IRA remains your spouse’s no matter what happens to your marriage later.
4. Increase Some of Your Tax Breaks
One of the best ways to get truly tax-free money is to contribute to a Health Savings Account. Not only do you get a tax deduction for your contribution, but the money also grows tax-free in the account as long as you withdraw it for qualified healthcare expenses. For the 2023 tax year, the maximum contribution is $3,850, going up from $3,650 for tax year 2022. However, if you’re married you can qualify to make a family contribution, where the limit is $7,300 for 2022 and $7,750 for 2023. If you’re over 55 you’re eligible for a $1,000 catch-up contribution. Over time, being able to make a larger tax-free contribution to your HSA can yield huge benefits.
There might be other tax benefits, like getting a higher deduction for charitable giving and seeing a higher personal residence gain exclusion when you get married.
Married couples can generally double some of their tax benefits as compared to those filing as single. When you combine these types of increased benefits with an income disparity, it can save you even more money when it’s time to pay Uncle Sam.
5. Benefits Shopping
Do both of you have jobs with benefits? You can see which job offers the best benefits. Maybe one job offers the HSA, while another has a dependent care plan. You can also run the numbers to see where you get the most benefit from healthcare plans, retirement plans, and other benefits. In some cases, you might tap into benefits from both jobs. Run the numbers, look for the benefits, and see where you can reap the biggest tax savings.
6. Protect Your Estate
Spousal survivorship allows for you to pass your estate on to your soulmate without worrying about the estate tax. Of course, when your spouse dies, the estate tax comes into play with your heirs.
Plus, with certain accounts, like IRAs, passing onto a spouse allows them to treat the IRA as their own, which can have its own benefits.
Double-check the requirements and see if there are ways you can make the most of these advantages just by being married.
7. You’ve Only Got One Tax Return
You can reduce your expense and hassle by only filing one tax return as a married couple, rather than dealing with two tax returns.
It’s true that married couples can file separate returns. However, realize that you need to coordinate your returns in that case. You both can’t always claim the same deductions, and there might be other restrictions, including who gets to claim the kids. In many cases, married filing separately is like filing as a single person—you won’t see some of the tax savings you would by filing jointly.
Plus, you end up with the expense of filing two returns, instead of only filing one return. You can save money on filing costs just by filing as a married couple.
There are times when filing separately can make sense, but it’s a good idea to consult with a tax professional and run the numbers before making that decision. However, if you don’t want to pay hundreds of dollars to have a professional file your taxes for you, you can still get professional help with TurboTax. You’ll find plenty of affordable price options there and if you file as a couple, you may be able to take advantage of one or more of the following: Earned Income Tax Credit, American Opportunity and Lifetime Learning Education Tax Credits, Exclusion or credit for adoption expenses and the Child and Dependent Care Tax Credit.
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Unless you’re both high earners with similar incomes, there’s a good chance that you’ll be better off getting married and filing jointly. There are times when filing jointly doesn’t make sense, such as when you’re afraid your significant other might not be completely honest about their situation. With a joint return, you’re both equally responsible for the tax bill—and any mistakes.
As you look at your finances with your significant other, consider the tax consequences and visit with a knowledgeable professional. You might not think you need a piece of paper to prove your love, but getting married might be about more than your love for each other. It could improve your financial situation by lowering your taxes.