“The Friendly Accountant,” written by Nate Reagan, Handy Reagan LLC, Director of Tax Services, shares information that you need to know but were afraid to ask (because you thought you’d have to pay for it). Nate holds his CPA/PFS credentials, and his specialty is multiple related business entities and wealth management planning.
Tax Benefits of Marriage
When it comes to taxes, is marriage a bonus or a penalty? The answer is of course, “it depends.” Everyone’s situation is unique.
Many years ago, the standard deduction for married couples was less than double the amount for single individuals. This was known as the marriage penalty. There are still marriage traps hidden in the tax code, but there are also some very nice tax benefits of filing jointly.
To see these tax benefits you only need to be married on the last day of the tax year. In other words couples marrying on January 1, 2014 will receive the same treatment as couples marrying on December 31, 2014. Here are a few of the benefits offered to those filing jointly.
Residence Gain Exclusion
A taxpayer meeting certain criteria is allowed to exclude up to $250,000 of gain from the sale of a qualified primary residence. However, for married couples this exclusion is raised to $500,000 of profit. For married couples who have lived in one home most of their life, this is a real plus!
Spousal IRA
IRAs or Individual Retirement Accounts are exactly that, retirement plans for a specific individual. Tax deductions are offered for contributions to your own IRA. The catch is that you can only contribute to an IRA if you have earned income; this means wages, salaries, or self-employment income. However, The spousal IRA rules address the needs of the stay at home spouse. These rules can allow a spouse to make a tax deductible contribution to an IRA even if they don’t have earned income.
Non-Working Spouse
Married couples filing jointly get to take advantage of a different set of tax brackets. The tax brackets are in most cases nearly doubled what the single taxpayer can use. This can make a significant difference if one spouse is a non-working spouse or does not make a significant amount. In this case a couple could have the same joint income as a single taxpayer, but be able to take advantage of a lower “married” income tax bracket and thus pay less tax.
Student Loan Interest
Certain deductions are reduced and completely go away after an individual begins to earn “too much” money. If you are a single taxpayer and make more than $75,000 you are not eligible for the student loan interest deduction. However, a married couple can make a combined $155,000 before completely losing the student loan interest deduction.
In certain situations marriage can provide a real break. Of course every situation is a little different, so you should always consult a tax advisor if you are unsure.
Supplemental Reading
