We live in changing times. What constitutes a legal marriage has changed and will change further as lawmakers stick their fingers in the pie. Everyone feels when it comes to taxes, single individuals pay more. You hear it all the time. Lawmakers allow married people to use the most-favored tax-rate table: the highly touted Table 1, Married Individuals Filing Joint Returns.1
True, marriage can produce a tax-rate advantage. However if both husband and wife are working making money this may not be the case. The only way to really know is to play with the numbers.
You definitely save tax money when you marry someone with a lot less taxable income than you have. For example, say you have taxable income of $213,051, and your prospective mate has taxable income of $10,100. If married and filing a joint return, you and your mate would enjoy federal income tax savings of more than $5,500. 2. Further, you realize the marriage savings year-after-year, which means that you could accumulate a sizable advantage during your lifetime.
But if you and your prospective mate are high earners the marriage penalty kicks in. For example, say you each earn $225,000 in taxable income. If you marry, you will pay more than $9,000 in additional income taxes.
Over the years, lawmakers have worked hard to eliminate the marriage penalty. In the 1980s, the marriage penalty was so bad that there were cases of couples divorcing on December 31 and remarrying on January 1. Now that the marriage penalty is far less, the ducking off to the Dominican Republic (Guam is a better choice) for a quickie divorce on December 31 followed by a quickie remarriage on January 1 has pretty much disappeared. That’s especially true when there’s not much of a marriage penalty or bonus. Say that you and your prospective mate each have $80,000 in taxable income. If you marry, you will pay about $400 more a year in federal income taxes—not close to being worth the trip to get divorced and remarried.
ADVANTAGES TO MARRIAGE
1) If your Prospective mate has small business with losses. Those losses offset your Taxable Income.
2) IRA if your single you have to have compensation, not so when you're married and the limitations of compensation increases when you're married.
3) If married the excluded amount of the gain on the sale of qualified residence is $500,000.
If you are single, you can qualify to exclude from taxation up to $250,000 (must qualify).
4) Federal estate and gift tax rules give special advantages to married couples.
For 2013, an individual’s estate qualifies for an exclusion of up to $5.25 million from estate taxes. If married, you and your mate can plan to exclude up to $10.5 million from estate taxes.
5) The unlimited marital deduction allows you to pass all assets to your spouse tax free.
When getting married the impact on your taxes should be evaluated on a case by case scenerio. Sometimes the best answer for your taxes may be to have a huge reception without a marriage license and just live together.
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