Are there any tax benefits to being married over being single?
Marriage can have major consequences for you and your partner’s tax situation and could save you both money in the long term.
When planning for a wedding, it is crucial to keep in mind that marriage can have significant financial consequences for both partners after tying the knot. It can affect how you file taxes, how your income levels are calculated, which taxes you are liable for, and how much you will both have to pay. Although not always the case, there are certain financial benefits that married couples can enjoy if they decide to file their tax returns jointly. Here are four key tax benefits for married couples to consider.
Marriage can reduce your capital gains tax liability
Married couples can transfer assets between themselves without any tax implications, meaning that it is easy to shift who has the tax liability for the asset. This is particularly useful when trying to limit the amount of capital gains tax you must pay.
If one spouse has a lower income and therefore falls into a lower tax bracket, they can avoid paying a higher tax rate by transferring financial assets to the person who is taxed less. This can include anything from company shares to rental property and effectively prevent them from being taxed at a higher rate.
Easier filing
An underappreciated aspect of the tax-filing process is simply how time-consuming and costly it can be. Sen. Elizabeth Warren has been pushing for reform to the tax filing system, which currently sees the average filing take 13 hours and $200 to complete.
Married couples can file a joint tax return, preventing the unnecessary waste of time and money.
No estate tax for inheritance
Marriage offers a significant financial benefit in avoiding estate tax, the tax charged on inherited assets after death. All assets passed down to a decedent are subject to this tax, but married couples can bypass it by leaving an unlimited amount of money to their spouse without incurring estate tax. It’s worth noting that the tax will only be imposed once both couple members have passed away.
Marriage opens up eligibility for IRA contributions
Individuals who are unemployed are generally not eligible to contribute to an Individual Retirement Account (IRA), which is one of the most popular ways to save for retirement. However, if you are married and your spouse is employed, you may still be able to contribute to an IRA by using your combined income. Married couples who are eligible can choose to make separate IRA contributions or contribute to a single IRA fund together.