Marriage comes with many benefits, both emotional and financial.But it’s unlikely that the tax benefits (and drawbacks) of your new union are top of mind while wedding planning. The reality is that there are both pros and cons to consider when tying the knot, in terms of taxes and personal finances. Here are a few to keep in mind.
Pro: double deduction when filing taxes
Married couples filing jointly can claim double the standard deduction on their taxes.
For 2019, the standard deduction for married filing jointly is $24,400, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction is $12,200.
Keep in mind some couples may experience a marriage penalty if the two pay more income tax filing as a married couple than they would pay if they filed as individuals. This typically affects couples with similar incomes. Here’s a guide to your estimated taxes.
Pro: home sale exclusion
Selling a house together? Married couples derive a tax benefit here too: They can exclude up to $500,000 in gains from taxation when the house is sold. This applies if the owners lived in the property for at least two of the previous five years, said Riley Adams, certified public accountant and creator of Young and the Invested.
Single filers or married couples who are filing separately can only exclude $250,000 of gains, he said.
Pro: Child Tax Credit changes
Filing jointly as a married couple leads to tax benefits for any current (or future) children. Joint filers can earn twice the adjusted gross income of single filers before the child tax credit begins to phase out.
For example, a married couple can make $400,000 in adjusted gross income before losing the ability to claim the full child tax credit, whereas a single person could only make $200,000 before losing access to the full credit, Adams said.
“Essentially, filing jointly as a married couple doubles the amount of adjusted gross income a couple can make without losing access to the full child tax credit,” he said.
Pro: IRA benefits
Even if only one spouse is employed, it’s possible for both individuals to reap the tax benefits of a traditional IRA account.
The income-earning spouse can still open an IRA in their partner’s name and make tax-deductible contributions in the form of spousal contributions, said Tiffany Welka, financial advisor and accredited wealth management advisor for VFG Associates.
Pro: tax-free death inheritance
Under federal tax law, any money left to a spouse who is an American citizen is not taxable at death.
“Therefore, people can leave unlimited amounts of money to their spouses,” said Katya Sverdlov, a chartered financial analyst and founder of Sverdlov Law.
If your spouse had life insurance, you will typically not have to pay taxes on a life insurance payout, as it is not considered taxable income.
Con: tax bracket changes
There are many benefits to becoming a dual-income household, like more money to cover living expenses and a potential second income to fall back on in the event one partner loses a job. But the increased earnings could also mean a higher tax bill.
While most couples score a bigger tax break by filing jointly, there are reasons to file separately.
- To separate your tax liabilities
- To score a significant itemized deduction one spouse can’t take (some deductions are limited by your adjusted gross income)
- One spouse has debts subject to refund seizure or an income-based payment (like student loans).
- Couples should do their research to determine which tax filing option is best for them. You can learn more about the tax brackets and how to file your taxes here.
Con: combined debt
When you’re married, their debt is now your debt, even if you keep your money separate from each other. So if your spouse is less than responsible with credit card spending, you could be on the hook.
Original source: Mediafeed.org