Tax Benefits for Married Vs. Single
- If you sell your home at a profit, and you are a married couple filing jointly, you can exclude up to $500,000 from capital gains tax. If you weren't married, and the house was only in one person's name, you could only exclude $250,000. You must have been living in the home for at least three of the previous five years to qualify for the exclusion.
- Married couples have a choice whether to file a joint return or as married and filing separately. This can be a valuable option when one spouse earns much more money than the other, since the spouse with the lower income may be able to qualify for certain tax credits or deductions that she could not qualify for with both spouses' combined income. On the other hand, filing joint returns may help you maximize the number of dollars taxed in lower tax brackets. Calculate your tax liability, including all available deductions and credits, with a joint return as well as separate returns.
- Married couples have significant Social Security advantages not available to unmarried couples. If a couple has been married for at least 10 years, a non-working spouse is entitled to a portion of a working spouse's Social Security benefits, even if she has paid little or nothing into the Social Security system during her working years.
- Marriage may enable you to put more money away on a tax-advantaged basis than you would be able to otherwise. Normally, the Internal Revenue Service restricts your Individual Retirement Account contribution eligibility to earned income. However, Congress has authorized an important exception to the rule - a working spouse may contribute to an IRA on behalf of a nonworking spouse. This effectively doubles the amount of allowable tax-deferred contributions to a traditional IRA, or or the allowable contributions to a Roth IRA, compared to an unmarried couple with one partner out of the work force.
- A spouse who inherits a 401k, IRA or other retirement plan has more choices and flexibility than an heir who is not a spouse. The surviving spouse can elect to treat an inherited retirement plan as her own, thereby avoiding the requirement to start taking money out of the account, paying taxes and giving up the benefits of tax deferral on future growth. The surviving spouse has the right to delay taking required minimum distributions on tax deferred accounts until she turns 70 and a half, and, in the case of an inherited Roth IRA, does not have to begin taking distributions at all. She can live on the income from other assets and let the money grow tax free for her heirs.
- As of early 2011, the estate tax has been temporarily rolled back to zero percent. If it does return, however, marriage has powerful tax benefits when it comes to estate planning. Traditionally, the tax code allows for an unlimited transfer of wealth from a deceased spouse to a surviving spouse, with no tax liability. There is no gift tax, nor income tax, nor estate tax on the transaction. However, an estate tax may apply when the second spouse dies. Marriage only delays the estate tax bill - it does not eliminate it.
