Being married can offer some key tax advantages for couples. Getting ready to file? Planning for next year? Wondering how getting married may affect your tax obligation? Then, check out the following four tax advantages.
1. Lower Tax Bill for Couples with Income Disparity
Married couples who earn different amounts of money typically end up paying less income tax when filing together than they would if they filed on their own. As of 2019, couples can claim a $24,000 standard deduction, or you can itemize your deductions if the total exceeds that amount. In contrast, single people can only claim a $12,000 standard deduction.
To explain, imagine one spouse earns $100,000 per year. If they filed as a single person, they have $88,000 of taxable income, putting some of their income into the 24% tax bracket. However, let’s say their spouse earns $24,000 per year. After claiming the standard deduction for a couple, they have $100,000 in taxable income. But because the income tax brackets are wider for married couples, the highest tax rate applied to their income is only 22%.
2. Different Filing Choices
In most cases, couples reap the most tax advantages by selecting “married filing jointly”, but in some cases, couples may benefit from choosing “married filing separately”. Luckily, when you're married, you have the flexibility to choose between these two different options. An accountant can help you crunch the numbers and identify the best option for your financial situation.
3. Higher Threshold for Key Tax Breaks
In addition to receiving a higher standard deduction and lower tax brackets, couples also enjoy increased thresholds on many tax breaks and credits. For instance, a single person cannot claim the child tax credit if their adjusted gross income exceeds $200,000, but a couple can claim this credit with income up to $400,000. This rule applies to a long list of other credits and tax breaks as well.
4. Doubled Capital Gains Exclusion on Your Home
As a general rule of thumb, if you earn money selling an investment, you have to pay capital gains tax on the earnings. However, the Internal Revenue Service (IRS) gives you a break when you sell your home. To qualify for this capital gains exclusion, you must have lived in your home for at least two of the last five years, and you must not have claimed another primary residence exclusion in that time frame.
As a single tax filer, you can earn up to $250,000 when you sell your primary residence, without worrying about paying capital gains tax. In contrast, couples filing together can earn up to $500,000 on their primary residence without facing a tax bill.
Multiple other exclusions also get doubled when you're married. In particular, in the unfortunate event of a loss of life, you can pass any amount of assets to your spouse, and as of 2019, the estate can be worth up to $22.8 million without incurring the estate tax. Single filers trigger the estate tax when they have an estate worth more than $11.4 million.
5. A Single Return
Finally, when you opt to file your tax return jointly as a couple, you only have to complete a single return. That can save you time and money.
Want to learn more about the tax advantages for married couples? Need expert help filing your tax return? Want to make sure that you face the lowest tax liability possible? Then, contact us today. At Scott Boyar, CPA, we provide year-round bookkeeping, tax prep, tax planning, and QuickBooks services.