5 Things that a COUPLE be mindful of when FILING TAXES?
The decision to marry someone usually revolves around love and compatibility. Finance is an aspect that we don’t know usually bring into the equation. However, it is an aspect that ought to get additional attention, since it comes with tax implications.
You can be a smart couple and save thousands of dollars in a financial year by taking a few key decisions related to taxes. Here are the top 5 things that you need to be mindful of when filing taxes.
Of the many decisions that a new couple has must take, the first one comes down to choosing between the following filing types:
- Married filing jointly
- Married filing separately
Needless to say, each type has its pros and cons. Let’s assess the benefits of filing jointly first.
- On filing together, couples can enjoy lower tax rates since their income is combined and then the taxes are calculated.
- It brings in a sense of responsibility as well since both the individuals must sign the filing.
- You get access to a wider range of benefits as per the tax codes.
However, there are a few scenarios and conditions where you would want to file separately. Such as:
- If a spouse is involved with business and the other partner does not want to be involved with the same.
- In the event that a spouse is expecting refunds, filing separately will not jeopardize the refunds as well.
Possibly Lower Taxes
As already mentioned in the above, couples filing jointly can benefit from lower tax rates due to the combination of income. Couples with varying income levels can benefit from it. However, the benefits just do not end with lower taxes. You can opt for several tax credits as well. Here is a couple of them.
- Lifetime learning credit
- Adoption expense credit
If one spouse itemizes their tax filing, the tax code considers the standard deduction of the other spouse as $0. This ensures that the couple together itemizes and does not miss out on deductions.
Gift Taxes Exemption
Another advantage of filing for taxes jointly comes in the form of gift taxes exclusion or exemption. Here is how it works.
- Currently, the annual federal exclusion for gift taxes is $14,000 per spouse.
- If you are filing jointly, you can combine this exclusion.
- You can use this clause to strategically move assets to loved ones or between both of you.
Cap LessMarital Deduction
This is one of the most understated benefits of filing taxes together as a couple. Though none of the couple’s plans for this, it is good to have feature. Surviving spouses have access to the unlimited marital deduction which allows them to transfer assets to their name. This might not seem that significant early on but gains a lot of momentum as the year’s pass.
The child tax credit is one of the most alluring credit systems for married couples who want to file jointly. Here are the benefits.
- The IRS allows couples to reduce their net taxable income by $1,000 for every qualifying child.
- Factors such as relationship, age, dependent status, residence, citizenship and support decide whether your child is qualifying or not.
- You can claim the benefits if your child is less than 17 years old, lives with you for more than half of the year and is related to you either by blood, adoption or marriage.
Given the fact that in 2015, 141.2 million taxpayers declared earnings to the tune of $10.14 trillion as adjusted gross income, resulting in taxes worth $1.45 trillion, it is essential that you are aware of the above.