Tax Advantages of Marriage Maximizing Financial Benefits

What Are The Tax Benefits of Marriage?

These gifts are in the form of a higher standard deduction, multiple tax credits, and higher income thresholds. Here are some of those marriage tax benefits that you should know about when you take that big step and tie the knot.

Easily Save Clients Thousands in Taxes

Scan client returns. Uncover savings. Export a professional tax plan. All in minutes.

Request a Demo

What Are 10 Tax Benefits of Getting Married?

Lower Tax Bracket Couples who earn significantly different income amounts, like when one spouse earns all or most of the couple’s income, reap the greatest tax benefits. This is because when married couples filing jointly, the incomes between the two spouses are combined when determining the tax bracket. The lower salary pulls the higher earner into a lower tax bracket which reduces tax liability since the tax rate is lower. This could result in a significant amount of savings.

Earned Income Tax Credit The earned income tax credit is a benefit for individuals with low to moderate income. It’s designed to encourage individuals to seek employment and help reduce the national and state poverty level. This is especially true for families with children. Marriage increases the earned income tax credit if a parent who doesn’t work files jointly with a spouse who is a low earner.

FSA Contributions (HEALTH) A flexible spending account (FSA) is a type of savings account where married couples can enjoy specific tax advantages. This is an account that an employer can establish for employees: employers and employees can contribute to this account. Distributions from these accounts must be used as reimbursement to the employee for qualified medical and dental expenses. Contributions are deducted from earnings and are not subject to payroll and income taxes. Withdrawn funds used to pay qualified dental and medical expenses are not subject to tax either.
Married couples that have separate health insurance and access to an FSA can both take advantage of these accounts and lower their health care costs. Married couples who both fund FSAs can pay up to twice the amount in medical expenses on a pretax basis than those who are single.

Higher Standard Deduction Another tax benefit for married couples is a higher standard deduction. The IRS gives married couples twice the amount of standard deduction those who file as single and married filing separately. Married couples can deduct twice the amount of income right off the bat.

IRA Contributions If you’re single and don’t earn a paycheck, then you can’t make an IRA contribution. However, if you’re married and don’t earn a paycheck, you may be able to make an IRA contribution based on the income of your spouse. Each spouse can make a contribution that is tax deductible up to the contribution limit for the year. This doubles your tax deduction for the year.
Additionally, the phaseout income limits are higher for those who are married than for those who are single. Therefore, taxpayers with higher incomes who can’t contribute to a tax deductible IRA based on income limits may be able to contribute after they are married.
If the couple isn’t eligible to make a tax deductible IRA contribution due to limits on income, both spouses could, at a minimum, make IRA contributions that are non-deductible.

Tax Write-Offs If you’re a taxpayer who is single and losing money on a business, you more than likely will not be able to make use of the house-related deductions. If you’re married, however, the losses from one spouse can sometimes help both spouses. The spouse with an earned income may be able to make use of the tax deductions that were unused and claim the loss as a write-off on a joint return.

Pick and Choose Benefits If benefit packages are offered to both spouses through their employment, then they can pick and choose between the two plans. Usually, each plan doesn’t offer the same benefits, so couples can choose the best benefits from each plan that help them the most. Picking the right combination can help maximize tax savings.

Deduction for Charitable Contributions Every year there’s a limit to how much of a deduction you can take for charitable contributions based on income when itemizing. The limit is higher for married filing jointly than it is for filing single. Taxpayers who are filing jointly should take both incomes into account so they can deduct a greater amount per given tax year. Any excess contributions are carried over to the next year. Even if you take the standard deduction, the deduction for qualified cash contributions is twice that for married filing jointly than it is for those filing single.

Estate Tax The exclusion limits on estate taxes are so high that most people won’t encounter estate taxes. Estate taxes are taxes on assets that have been passed down to their heirs. However couples with a high net worth can claim the estate tax marital deduction. This allows those who are married to transfer assets in an unlimited amount to the other spouse tax-free at any point during their lifetime or after death.

Personal Residence Home Sale Exclusion Another benefit is when you sell your home. If you’re single, you can exclude up to $250,000 of your capital gains from your taxes. If you’re married, you can exclude up to $500,000. To claim the entire exclusion, you have to pass the ‘Ownership and Use Test’. To meet this, you must have lived in and owned the home as a principal residence two out of the five years before the sale. You can claim this exclusion once every two years.

Getting the Most Out of Marriage Tax Benefits

If you are married and are looking to save on your taxes, taking advantage of tax deductions and credits can be a powerful strategy. Tools such as Corvee tax planning software help quickly find the tax saving strategies available to each unique use case.

Corvee can help you find benefits that will save your clients money on taxes. Request a demo today