There are many reasons to get married—love, compatibility and starting a family to name a few; but, taxes? No, we’re not suggesting to get married based on the tax breaks alone (that wouldn’t be cool)! However, the tax law gives a little bit more bliss to those who say “I do.”
Are you filing jointly or separately?
IRS encourages married couples to file their taxes jointly. This provides the most beneficial tax outcome for most couples because when married couples file separate return, some deductions and credits are reduced or unavailable.
Joint filers mostly receive higher income thresholds for certain taxes and deductions—this means they can earn a larger amount of income and potentially qualify for certain tax breaks.
Whether you get a tax bonus by being married or end up paying the marriage penalty, depends on how much income you and your partner make and how it’s divided between you.
The standard deduction for separate filers is far lower than that offered to joint filers. Take that into consideration when you’re doing your paperwork, work with the two scenarios and make sure you’re picking the one that gives you bigger tax savings.
Taxes and estate planning
Under federal tax laws, you can leave any amount of money to a spouse without generating estate tax, so this exemption protects the deceased’s estate until the spouse dies. The IRS calls this the marital deduction. By transferring sufficient assets to the surviving spouse in the proper manner, estate tax liability upon the first spouse’s death can be completely avoided. Point for marriage!
Buying your first home
Unless you’re buying your home as an investment, you and your spouse will have tax deductions available to you now as a homeowner and they will reduce your tax bill substantially.
When you get married and start filing jointly, your income is combined—which, in turn, may bump one or both of you into a higher tax bracket. For higher-income couples, the disparities are even more egregious, making bracket structure one of the biggest marriage penalty provisions in the tax laws.
Standard or itemized deductions?
YAY! You’re married and now you bought that awesome (on budget, score!) townhome. Now you may want to start itemizing your deductions. Starting by once you are married and own a home, many people find that it is more advantageous to itemize their deductions—typically because deductions such as mortgage interest results in a higher total deductible amount than the standard deduction.
Married with children
Count the kids between the tax blessings, according to the IRS, The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon your income. This credit has limitations and it’ll depend on your gross income.