May 20, 2015

Denver Tax Attorney   What Are the Tax Implications of Marriage?There are numerous tax considerations for married filers. Depending on a couple’s specific circumstances, being husband and wife can be considered either a bonus or a penalty. Although marriage can potentially lead to a substantial tax penalty, it can also lead to a tax bonus in other scenarios.

Filing Status

Newly married couples face the tricky matter of their filing status, which is a major factor when it comes to filing requirements, tax liability, and eligibility for certain tax credits and tax deductions. Should a spouse select “married filing separately” or “married filing jointly”? As with any decision, there are advantages and disadvantages for each option. There are typically more tax benefits to file jointly, although there may be specific reasons for a couple to file separately.

Married couples that file jointly may be able to enjoy lower tax rates on combined income. This filing status also means that both spouses are jointly accountable for the taxes, penalties, and interest incurred on income earned by one or both spouses.

Filing separately may be an option if one spouse believes that the other spouse is not accurately reporting his or her income or deductions. It may also be an option if one spouse owes income taxes, which may put the refund of the other spouse in danger if they filed jointly. Filing separately may also be best if one spouse is self-employed and the other spouse does not wish to be linked to his or her spouse’s business.

Income Taxes

As mentioned above, married couples that file jointly qualify for lower combined income tax rates compared to couples that file separately. This tax benefit is particularly appealing to spouses with widely disparate incomes or to one-earner couples. However, there may be a marriage tax penalty if couples have equal or similar incomes—particularly couples in higher tax brackets.

Child Tax Credit

This particular tax benefit is appealing to married couples with children. The Child Tax Credit allows couples to lessen their taxable income by up to $1,000 for every “qualifying child” in the family.

In order to qualify for this tax benefit, the child must be below 17 years of age; must be related to the couple by either blood, marriage, or adoption; must not have provided “more than half” of their own support; must be a U.S. citizen, must have lived with the couple for over half the year, and must be declared as a dependent on the couple’s tax return.

Gift Tax

The gift tax exclusion allows an individual to purposefully transfer assets between loved ones. At present, the annual federal gift tax exclusion for is $14,000. This exclusion may be combined when two individuals are married. This essentially means that the spouse’s recipient may use, enjoy, or possess the gifted property immediately and without restrictions.

Estate Tax

The unlimited marital deduction is one of the most prominent tax benefits available to married couples. This means that an individual can leave any amount to his or her spouse without federal estate tax, provided that the recipient spouse is a U.S. citizen.

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