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Did you know you could save money by filing jointly?
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Goodbye to New Year’s and hello to tax season! For married couples, you have the option of filing separately or filing taxes jointly. Which route you choose will depend on your situation, but many people are unaware of the various little-known perks associated with filing taxes jointly that can reduce your tax liability. Let’s take a look at six of these lesser-known perks that married couples should consider when filing their taxes.
1. Retirement savings
Filing taxes jointly gives married couples the ability to save more for retirement. In order to contribute to an individual retirement account (IRA) you must have earned income. But if you are married, then each spouse can contribute up to $6,000 ($7,000 if you are over 50) even if one of them isn’t working. This is done through a spousal IRA. This also doubles your tax deduction the year you make the contribution.
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Another great benefit is that the phase-out limit to contribute to a Roth IRA is higher for married couples. If you are single and make more than $144,000 in 2022, then you are unable to contribute to a Roth IRA. If you are married, however, that limit is $214,000, so if your spouse’s income makes your combined income less than that amount, then you are able to take advantage of the benefits of a Roth. The same goes for contributing to a tax-deductible traditional IRA.
2. Personal exemptions
Personal exemptions offer taxpayers a break on their taxable income by allowing them to deduct certain items from their taxable income. When filing jointly, you will receive two personal exemptions instead of one. This could add up to hundreds of thousands of dollars in additional savings on your tax bill.
For example, the personal residence exemption for selling your home is $250,000 if you are single. The amount doubles to $500,000 if you are married, allowing you to keep more of your profits from the sale of your home.
3. Tax bracket benefits
Filing taxes jointly may allow you to take advantage of the lower rates associated with higher income brackets. If there is a big difference between what you and your spouse earn, you may be pulled down into a lower tax bracket. Let’s say you are earning $200,000. As a single filer, you would be in the 32% tax bracket.
But if you have a spouse that didn’t make money or less than the combined gross income of $340,100, then by filing jointly you would drop to the 24% tax bracket. This could mean significant savings for you, especially if you are on the cusp of a higher tax bracket. Keep in mind that filing jointly could also bump you up into a higher tax bracket, so make sure you do your research to find what is best for you.
4. Tax credits
Filing taxes jointly makes it much easier to qualify for certain credits, such as the Child Tax Credit, Child and Dependent Care Credit, Adoption Credit, Saver’s Credit, American Opportunity Credit, Lifetime Learning Credit, Earned Income Tax Credit (EITC), and many more. Credits are better than deductions since they reduce your tax bill dollar per dollar. When filing jointly, you may be able to claim an even larger credit than if either spouse had claimed an individual return.
5. Tax-free gifts
As a married couple, you can give gifts up to $16,000 each in value without having to pay any gift taxes on them. So you and your spouse can give up to $32,000 combined to any number of family members or friends without having to worry about filing a gift tax return. This number jumps up to $17,000 per person in 2023.
6. Deduction opportunities
Joint filers are eligible for higher deduction amounts than single filers, which can lead to even greater savings on their taxes. For 2022, the standard deduction is $25,900 for couples filing jointly, $12,950 for single filers and married individuals filing separately, and $19,400 for heads of households. This means you get to deduct more of your taxable income, thus reducing the total amount that you owe in taxes. Filing taxes jointly opens up several opportunities for deductions that may not be available if you file separately. These include deductions for mortgage interest and charitable contributions, among others.
Filing taxes jointly offers numerous benefits over filing separately that many people are unaware of until they actually go through the process themselves. If you’re married and deciding whether you should file together this year, consider these little-known perks that come with filing jointly. You might be surprised at just how much money you could save! From taking advantage of spousal IRAs and increased personal exemptions to earning extra credits and more — there are plenty of reasons filing jointly can be beneficial. But it is important to do your research (and perhaps consult with a tax professional), since each situation is different.
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