“If love is blind, I guess I’ll by myself a cane”
- W. Axl Rose
While love may be blind, your tax planning when it comes to getting married shouldn’t be. Why? Because some couples are surprised to learn that getting married may actually result in a higher tax liability than remaining single.
On the other hand, if the circumstances are right, then getting legally married before the end of the year can actually benefit you tax wise. Why? Because if you are legally married as of December 31, then you are considered married for the entire tax year.
At Gedeon Law & CPA, we’ve put together the following tax advantages for those considering getting married before the New Year:
Married Filing Jointly Tax Rates
Most people know that married people who file jointly get to take advantage of the most favored tax rates.
This is especially beneficial for couples where one partner has a lot less taxable income than the other.
For example, say one partner has taxable income of about $213,000 while the other partner has taxable income of $10,000. Assuming the couple files jointly, the federal income tax savings are more than $5,500. That’s enough to cover a nice lavish honeymoon to Mexico.
On the other hand, when both partners each earn over $225,000 in taxable income, then filing jointly can result in the couple paying approximately $9,000 more in taxes than filing as single.
At Gedeon Law & CPA, we can assist clients with crunching the numbers to determine the tax impact of getting married.
Spouse as a Tax Shelter
Sometimes marrying the love of your life may mean marrying a tax shelter too.
Let’s assume you are single with taxable income of about $80,000 and your tax liability is $16,000. Now your significant other has recently started a new business that generated a tax loss of $25,000. Well, getting married now let’s you claim those losses against your income, which can effectively zero out your $16,000 tax liability. Saving that kind of money can cover a nice wedding.
Retirement Tax Savings
Getting married may also entitle you to claim higher tax deductions for retirement planning. Assuming your spouse doesn’t work or is not covered by a retirement plan, then getting married can allow you to qualify for an IRA deduction on behalf of your spouse. Moreover, if you’re income is high enough to subject you to the IRA contribution phase outs, which is similar to the student loan interest deduction phase outs for high earners, then getting married significantly increases the phaseout limitations for both deductions. Depending on your tax situation, these deductions can help to lower your tax liability.
Capital Gain Tax Savings
So you’ve been holding on to that condo for a while now and the time has come to sell it to buy that family home to settle down with your spouse to be and start a family. As a savvy real estate investor, you’ve managed to make a significant profit on the condo. If you are single at the time you sell the condo, then you can exclude up to $250,000 of the profit from tax. In the event that the profit on the sale exceeds that threshold, then getting married allows you to qualify for an exclusion of up to $500,000. All you’ll need to show is that you and your spouse used the condo to live in for at least two years.
Estate Tax Savings
For most people, the estate tax threshold of $5.25 million is enough to exempt their estate from the estate tax. But if the value of your holdings is greater than the threshold, then you’ll want to consider getting married to double the threshold to $10.5 million to save on estate taxes.
And finally, getting married, to a US citizen spouse, allows you to pass your assets to your spouse free of estate and gift taxes. This allows your surviving spouse to avoid paying estate taxes until both spouses have died.
While we can’t help you determine if you’re marrying Mr. or Mrs. Right, the tax professionals at Gedeon Law & CPA are available to assist you with the tax planning involved with your upcoming nuptials.