There are a few certainties in life — such as death or taxes. If you have already agreed to be with someone until death do you part, it may be worth exploring what kind of tax benefits marriage can present. It may not be considered romantic, but offering your spouse tax deductions or even a higher tax return could be a great way to show you care.
Tax Benefits of Marriage
If you want to enhance the life you have together and reduce the amount you are paying together when filing your taxes, it is good to know what kind of tax credits married couples can get. Get ready to tie the knot around a better tax return with these seven tax benefits for married couples.
- Tax shelter
- Lower your tax bracket
- Benefit shop
- Estate protection
- IRA for jobless spouses
- Charitable deductions
- Time and expense efficiency
1. Tax Shelter
Marriage is about balance, and paying your taxes is no exception. If your spouse is losing money as a small business owner, or in some other form of business, you could turn this tax liability into a tax benefit by filing a joint return.
The partner who is in the red cannot take advantage of certain deductions, but the other partner, who is earning money, can take advantage of those unused deductions by writing them off in a joint tax return.
2. Lower Your Tax Bracket
The dreaded marriage penalty used to be more of a tax liability than a tax benefit. This is when the combination of incomes for spouses who earn similar incomes would elevate them into a higher tax bracket. Though this still can occur, Congress has taken steps to reduce the penalty so that what each partner pays in taxes isn’t much different than what they paid when they were single.
This can benefit a couple with a large disparity in income. For example, the lower earner’s salary combined with the higher income can bring the couple down to a lower tax bracket overall as a unit, thus reducing your taxes.
3. Benefit Shop
Though the benefit shop is not a real store, it is a good option for couples when both spouses have benefit packages from their jobs. This means it is time to go shopping for the most valuable benefits in the bunch and apply something from each plan to varying areas of your shared lives, such as dependent care or lowering taxable income through a flexible spending account. This will generally improve your tax situation.
4. Estate Protection
Losing a spouse is hard enough without having to worry about protecting assets or estate taxes. Marriage protects the surviving spouse under federal tax laws. This means, if you were to die and leave your spouse all your money, it would not generate an estate tax, which carries through to the end of their life. The contract of marriage protects your partner along with your assets in your absence, without the risk of a tax penalty.
5. IRA for Jobless Spouses
Typically, someone without paid employment would not be able or eligible to fund an individual retirement account, better known as an IRA. However, a married person without paid employment can give an IRA contribution from a joint account as long as they are a taxpayer.
IRA benefits can be much higher for married couples than for single individuals.
6. Charitable Deductions
The amount you can receive back for your charitable contributions will be probably less for standard deductions than if you do itemized deductions starting for the tax year 2022. By filing with your spouse, you can increase the standard deduction and even potentially carry the excess amount over to the next tax year.
7. Time and Expense Efficiency
It may sound obvious, but if you think about the amount of time and effort that goes into filing your taxes, wouldn’t it make more sense to just do it once rather than twice? If you are sharing your assets anyway, and want to get more tax credits, it may make sense to file a joint tax return.
Though nothing is entirely tax-free, it is helpful to be able to spot the benefits of where and how you can save on your taxes. Maybe the happily-ever-after notion of marriage is in part due to the tax breaks.
- Is there a tax advantage to being married?
- There are several tax advantages of being married, including such perks as estate protection and possibly lowering your tax bracket.
- Do you pay less taxes when married?
- Though it does depend on both spouses' combined incomes, you could pay less in taxes when married by combining the benefit packages you receive through work and mixing and matching your tax credits. You could get more in standard deductions for things such as charitable contributions when you file a joint return.
- Will the Child Tax Credit be lower this year?
- Yes; though the Child Tax Credit was raised over the past few years as part of COVID-19 relief efforts, it is now returning to its pre-pandemic amount of $2,000 per child for eligible families.
- What is the Earned Income Tax Credit?
- The Earned Income Tax Credit is designed to give tax breaks to low-income and moderate-income workers and families. The IRS is predicting this credit will also be reduced in 2022.
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- Congress.gov. 2023. "H.R.339 - SALT Marriage Penalty Elimination Act."