Just Say "I Do"
Author: Keith Huggett
With the legal definition of marriage changing, there will be changes in the tax laws regarding marriage as well. As it stands currently, there are both benefits and setbacks to being married in the tax code, depending on how much you earn and how you file.
Married, filing jointly allows married couples to use the most-favored tax-rate table to prepare their taxes. However, you also have the option to file separately. The only way to find out which way saves you more money is to run the numbers through your tax return.
At this point, how much you and your spouse earn determines how much you can save. If you earn more than your spouse, you can save more. If you and your spouse both earn high wages, you can expect to pay more in income taxes. Over the years, our lawmakers have tried to balance out the penalty of being married and earning high wages.
As a married couple, you also have an IRA advantage. If your spouse is "jobless" and has no compensation - wages, salaries, fees, commissions, tips, bonuses, or self-employment income, you can contribute to an IRA on his/her behalf. Also, the income limits that apply to your IRA contribution when you are in a qualified retirement plan increase if you are married.
If you are planning on selling your home, as a single tax payer, you qualify to exclude up to $250,000 of the sale profits. If married, that amount doubles to $500,000. However, you and your spouse must both pass the required "use" test and one of you must pass the "ownership" test.
Death comes to us all, and the IRS wants their part of it. Should you accumulate enough cash, investments, and property during your lifetime, it will fall to your heirs to pay the estate taxes. Federal estate and gift tax rules benefit married couples. For the 2013 tax year, an individual's estate qualifies for an exclusion of up to $5.25 million from estate taxes. If you are married, you and your spouse get to exclude double that amount for up to $10.5 million from estate taxes.
Citizenship has it's benefits too, as we all know. If you are married, the unlimited marital deduction allows you to pass assets to your spouse with no federal estate or gift taxes as long as he/she is a United States citizen.
As you can see, marriage can affect your taxes in both a positive and negative way depending on your earnings throughout your life, even unto your death. Proactive tax planning along the way can help you get the most out of your earnings and required tax payments. The Tax Office, Inc. and their tax specialists can assist you with tax planning, estate planning and any additional questions you may have. Please contact us today.
