THE MATRIMONY OF MONEY (AND THE IRS)

THE MATRIMONY OF MONEY

(AND THE IRS)

by Nesha Pai

You are married! Congratulations! All those months of planning, the details, the dress and then finally, the honeymoon. Marriage to the right person can be dreamy but it is still a work in progress as two people come together to build one life together. Marriage is not only about combining lives, households, and calendars, but is also about combining your bank accounts. The two become one.

Now, for some of you progressive types (like myself at this point in my life), I plan on keeping my own bank account and would hope to create a joint account we both contribute to for household expenses. Regardless of having separate bank accounts, the IRS looks at you as one. A joint couple. Now, you can file separately in cases of a substantial income difference between you and your spouse but you will pay for it by being in a higher tax bracket.

If you are going to be filing your taxes jointly for the first time, know that you get tax breaks by filing Married Filing Jointly (MFJ). Isn’t that so romantic of the IRS?

First off, filing one return is less hassle and less expensive. Here are some of the other benefits:

HIGHER STANDARD DEDUCTION

Filing on one return gives you double the standard deduction (if you don’t have substantial itemized deductions that are greater, this is a good one). In 2022, the MFJ standard deduction is $25,900. The term standard deduction refers to the portion of income not subject to tax that can be used to reduce your tax bill. The IRS allows you to take the standard deduction if you do not itemize your deductions.

BETTER CREDITS

Married couples filing jointly may qualify for a number of tax credits they would not have if they filed separately, including the Earned Income Tax Credit, Child and Dependent Care Tax Credit, and American Opportunity and Lifetime Learning Education Tax Credits.

ESTATE PRESERVATION

Married couples can leave an unlimited amount of money to their spouses without generating any estate tax. This can protect a wealthy decedent’s estate until the death of the surviving spouse.

HIGHER IRA CONTRIBUTIONS

Single individuals who aren’t working generally cannot contribute to an IRA. But if a couple is married and one spouse isn’t working, the non-working spouse can contribute to an IRA using joint income and having two separate IRA plans.

PRINCIPAL RESIDENCE EXEMPTION

If you own a home with your spouse, you may be able to pocket more of the proceeds from its sale.

The personal residence exemption is an Internal Revenue Service (IRS) rule that allows people (who meet certain criteria) to exclude up to $250,000 for single filers or up to $500,000 for married filing jointly in capital gains tax from the profit they make on the sale of their home.

The above is just a brief summary of how it can benefit you to file jointly as a married couple. It is wise to talk to your financial advisor and your tax CPA to make sure you are maximizing all of the benefits. Relish the tax break as much as you relish the #foreverweddingdate!