Author Topic: Tax Benefits to getting married before the end of the year?  (Read 5845 times)

use2betrix

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Tax Benefits to getting married before the end of the year?
« on: September 27, 2015, 01:14:45 PM »
My fiancÚ and I have been together several years and were loosely planning on getting married next year. However, today I was thinking and researching more about getting married prior to December 31st for the financial benefits.

I travel all over the country doing contract work, and thus she travels with me. Because of this, she often doesn't work, which is great for both of us. I work a lot of hrs and make a good salary, so I appreciate her doing everything around the house while I'm at work.

Here are the benefits I see:
1. It will bump us down a tax bracket. My taxable income is about $150,000 we'll use for math's sake. I believe that becoming married and filing jointly, I would save about $6000 for 2015? Can someone else pease verify that math? I believe that'd be basically $6000 more I'd get back on my tax return.

2. I will become eligible again for a Roth IRA, as I'm not currently. I believe I could contribute $5500 for each of us?

3. This is one thing I'm unsure about. Even though she doesn't work, would I be able to open some kind of like personal 401k for her/us? I admittedly know very little about how that works for spouses. I'll max my own 401k this year.

Anything I'm overlooking? Trying to decide if it's worthwhile to go ahead and do this. The tax savings could pretty much pay for most the wedding.
« Last Edit: September 27, 2015, 01:17:05 PM by Trixr606 »

Left

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Re: Tax Benefits to getting married before the end of the year?
« Reply #1 on: September 27, 2015, 01:30:54 PM »
http://www.huffingtonpost.com/carmen-feliciano/taxes-the-extra-reason-to_b_4491137.html
http://gedeonlawcpa.com/how-to-save-on-taxes-by-getting-married-before-year-end/
old articles but still applies

but are you really going to decide marriage based on the tax code?

I didn't think you could open a 401k for her if she didn't earn the money... unless you "hire" her to do the housework... that's a discussion for you guys if you feel like paying her to work around the house

ira is okay I think
« Last Edit: September 27, 2015, 01:33:46 PM by eyem »

MDM

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Re: Tax Benefits to getting married before the end of the year?
« Reply #2 on: September 27, 2015, 01:44:33 PM »
Here are the benefits I see:
1. It will bump us down a tax bracket. My taxable income is about $150,000 we'll use for math's sake. I believe that becoming married and filing jointly, I would save about $6000 for 2015? Can someone else pease verify that math? I believe that'd be basically $6000 more I'd get back on my tax return.
Looks reasonable.  See http://forum.mrmoneymustache.com/taxes/am-i-witholding-too-much/ and links therein for various ways to estimate your taxes.

Quote
2. I will become eligible again for a Roth IRA, as I'm not currently. I believe I could contribute $5500 for each of us?
Yes, there is such a thing as a "spousal IRA".  There is also a "backdoor Roth IRA" so you could do that in any case.

Quote
3. This is one thing I'm unsure about. Even though she doesn't work, would I be able to open some kind of like personal 401k for her/us? I admittedly know very little about how that works for spouses. I'll max my own 401k this year.
Unlike spousal IRAs, there is no spousal 401k.

Quote
Anything I'm overlooking? Trying to decide if it's worthwhile to go ahead and do this. The tax savings could pretty much pay for most the wedding.
I'm sure you know this, but the answer to the "worthwhile" question has very little to do with taxes. ;)
Once you have answered thre real question, however, looking at tax implications is indeed wise.

Paul der Krake

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Re: Tax Benefits to getting married before the end of the year?
« Reply #3 on: September 27, 2015, 01:51:45 PM »
Also, you can double the HSA contribution if you have an eligible HDHP and put your spouse on it.

MDM

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Re: Tax Benefits to getting married before the end of the year?
« Reply #4 on: September 27, 2015, 02:10:38 PM »
1. It will bump us down a tax bracket. My taxable income is about $150,000 we'll use for math's sake. I believe that becoming married and filing jointly, I would save about $6000 for 2015? Can someone else pease verify that math? I believe that'd be basically $6000 more I'd get back on my tax return.
Depends on what you mean by "taxable".  See numbers below from the case study spreadsheet.  If by taxable you mean something closer to "Adjusted Gross" the numbers will be different.

Filing Status11=S, 2=MFJ
# Exempt.1
# of earners1
Total Income$160,300
Std. Deduct.$6,300
Act. Deduct.$6,300
Exemption$4,000
AGI$160,300
MAGI$160,300
Taxable$150,000
Tax$35,071


Filing Status21=S, 2=MFJ
# Exempt.2
# of earners1
Total Income$160,300
Std. Deduct.$12,600
Act. Deduct.$12,600
Exemption$8,000
AGI$160,300
MAGI$160,300
Taxable$139,700
Tax$26,513

use2betrix

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Re: Tax Benefits to getting married before the end of the year?
« Reply #5 on: September 27, 2015, 02:12:55 PM »
Thank you all for the insight. You're right there is no "spousal 401k", but I wasn't sure. Wouldn't that be nice lol.

As for the "real" question, the only reason we have put it off this far is due to time and $$, and getting all our ducks in a row. Since we travel all over for work and don't really "live" anywhere, it makes it difficult picking out a location and in a short time frame.

There's no question or doubt in either of our minds regarding the marriage. We're very very happy together.

While we don't plan on a "big"'wedding, it will certainly cost some money. I'm not looking at it as a way to celebrate our marriage, but more as a chance to get all of my family together, as we're spread throughout the country and don't get together very often.

use2betrix

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Re: Tax Benefits to getting married before the end of the year?
« Reply #6 on: September 27, 2015, 02:15:09 PM »
1. It will bump us down a tax bracket. My taxable income is about $150,000 we'll use for math's sake. I believe that becoming married and filing jointly, I would save about $6000 for 2015? Can someone else pease verify that math? I believe that'd be basically $6000 more I'd get back on my tax return.
Depends on what you mean by "taxable".  See numbers below from the case study spreadsheet.  If by taxable you mean something closer to "Adjusted Gross" the numbers will be different.

Filing Status11=S, 2=MFJ
# Exempt.1
# of earners1
Total Income$160,300
Std. Deduct.$6,300
Act. Deduct.$6,300
Exemption$4,000
AGI$160,300
MAGI$160,300
Taxable$150,000
Tax$35,071


Filing Status21=S, 2=MFJ
# Exempt.2
# of earners1
Total Income$160,300
Std. Deduct.$12,600
Act. Deduct.$12,600
Exemption$8,000
AGI$160,300
MAGI$160,300
Taxable$139,700
Tax$26,513

Ah thank you! That looks even better!! By taxable I guess I meant adjusted gross?

The 150k was an estimate after my 401k contributions are withheld, plus I get a per diem and travel home allowance which are not taxed as well.

MDM

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Re: Tax Benefits to getting married before the end of the year?
« Reply #7 on: September 27, 2015, 02:19:28 PM »
Ah thank you! That looks even better!! By taxable I guess I meant adjusted gross?

The 150k was an estimate after my 401k contributions are withheld, plus I get a per diem and travel home allowance which are not taxed as well.

For $150K AGI:
Single =   ~$32,187
Married = ~$23,938

At least, that's what I get.  Interested to see what you get.

use2betrix

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Re: Tax Benefits to getting married before the end of the year?
« Reply #8 on: September 27, 2015, 02:35:48 PM »
I didn't factor in a lot of items that have been mentioned here which is why I came up with $6000ish.

I mistakingly just looked at the tax brackets between single and married and did the math that way. Calculating the tax paid on $150k. I didn't factor in things like standard deductions, exemptions, etc.

Rural

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Re: Tax Benefits to getting married before the end of the year?
« Reply #9 on: September 27, 2015, 03:33:18 PM »
http://www.huffingtonpost.com/carmen-feliciano/taxes-the-extra-reason-to_b_4491137.html
http://gedeonlawcpa.com/how-to-save-on-taxes-by-getting-married-before-year-end/
old articles but still applies

but are you really going to decide marriage based on the tax code?




 I definitely  wouldn't decide on marriage on that basis, but from the OP it sounds to me more like the question is when, not whether. And on that front, let me just say that my parents decided to marry on New Year's Eve for tax reasons a little over 50 years ago now, and so far it's worked out just fine.

La Bibliotecaria Feroz

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Re: Tax Benefits to getting married before the end of the year?
« Reply #10 on: September 28, 2015, 02:08:03 PM »
Yeah, I don't see a problem with considering the "when" if the "if" is already set.

My 21-year-old sister-in-law* was going to have a big wedding in December, but wanted to get legally married in July so she could get free tuition at the university where her now-husband works. Eventually, she decided to hell with the big wedding and made her July elopement the real wedding. So proud :-).

*OK, yes, she is very young. But... is she in any worse position to make a marriage decision than my 35-year-old friend who got married the same weekend? The one who wants 4 kids before her biological clock explodes? SIL doesn't want kids at all. Just the guy.

dcozad999

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Re: Tax Benefits to getting married before the end of the year?
« Reply #11 on: September 28, 2015, 02:30:34 PM »
Years ago our wedding was in June but we did the local courthouse thing in January so I could put her on my health insurance. She was going to get stuck paying for the school's mandatory health insurance (she was a foreign student) unless she was covered under mine.

Now that I read this I guess I should punch myself in the face for not doing it in December, though I didn't know about the insurance thing until it came up in January.


In my book there's nothing wrong with getting the legal proceedings out of the way early if it benefits you like this.

robartsd

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Re: Tax Benefits to getting married before the end of the year?
« Reply #12 on: September 28, 2015, 02:37:24 PM »
*OK, yes, she is very young.

In my opinion the right age to get married is the age you are when you are sure that you've found the right partner. Of course the younger you are the more you ought to question your own judgement. If you make the right choice early on, you benefit for the rest of your life!

bryan

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Re: Tax Benefits to getting married before the end of the year?
« Reply #13 on: March 29, 2016, 08:04:18 PM »
bumping since it showed up in search.

I was looking into the possibility of getting married in 2016, and how that would effect taxes, my _own_ savings (would get a pre-nup for savings before marriage, after marriage income 50/50). I thought my situation might be interesting to share.

I am more or less a digital nomad with $0 rent, $0 utilities, but earning a high income. My resident state is zero income tax, zero capital gains tax. Technically I earn income in various states so file returns for the big ones as a proportion of income earned in state / total income; probably just non-resident CA in 2016. My girlfriend is a resident of CA. If we were to get (legally) married around xmas 2016 (actual ceremony presumably at some later date), it means we could file a federal joint return for 2016 and since she earns so little for 2016, I would save a lot on federal taxes. 2017 would reduce my own savings rate since I would probably become a resident of CA, begin paying some rent and bills, and of course be splitting income 50/50.

Sounds good so far (well, except the bit about not saving as much in 2017).

Napkin math, just considering income taxes with the only change as joint instead of single, is telling me it would result in an additional savings of $11,000 in 2016, for just me (though I would probably gift my new wife some amount as an explanation of why we would do this non-traditional approach to marriage but celebrating presumably at some later date).

Then I saw a little gotcha from CA tax board:
> Exception: If you file a joint tax return for federal purposes, you may file separately for California if either spouse was:
> A nonresident for the entire year and had no income from California sources during 2015.

That "and" is quite a kicker, costing me about $1500 of that $11,000. Basically free money for CA they don't deserve at all as far as I can tell.

Ultimately, $9500 is probably worth it to ensure we get hitched before 2017, all things considered. (I bet that would more than pay for a wedding ceremony or rings)

I've generally came away with the belief that marriage should not be a factor in taxes, at all. As well as detesting cliffs or big discrete jumps in (social security benefits, ACA, welfare, income) taxes (like getting married a day before the end of the year and everything is treated the same as if it were 363 days earlier). Even though it can be taken advantage of by savvy folks like us.

Just thought that might be of interest. We'll see how 2016 goes with work and the relationship. Let me know if there are some other huge benefits that should be considered for the case of a December marriage and wanting to maximize my own _individual_ savings for that year (I think that's fair).
« Last Edit: March 29, 2016, 08:07:50 PM by bryan »

Lanthiriel

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Re: Tax Benefits to getting married before the end of the year?
« Reply #14 on: March 29, 2016, 09:28:00 PM »
Just putting it out there that if she's following you around and not working, it would probably be better to marry sooner rather than later. I think I would feel uncomfortable in that situation without the law to say that I had access to my partner's assets should something happen.

robartsd

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Re: Tax Benefits to getting married before the end of the year?
« Reply #15 on: March 30, 2016, 10:00:55 AM »
Just putting it out there that if she's following you around and not working, it would probably be better to marry sooner rather than later. I think I would feel uncomfortable in that situation without the law to say that I had access to my partner's assets should something happen.
It doesn't sound like she's following around and not working from the original post.

If you really want taxes to not be affected by marriage, you file separately. What you actually want is to be able to take advantage of the joint return when it favors you (federal) but avoid it when it does not (state) - and CA will not allow that (sorry). It sounds like you expect that getting married in 2016 will require you to pay CA taxes as a resident for all earnings in 2016 because you'll file jointly with your wife who was a CA resident for all of 2016.

CA being a community property state and CA claiming taxes from residents for all sources of income: even if all your earnings were out of state and you remained a non-resident of CA, 1/2 of your earnings would be subjected to CA state tax due to your wife's CA residency. Earnings prior to your marriage are yours alone and earnings outside CA while not a resident of CA are not taxable by CA. I believe you can still file 540NR with your spouse and shield your out of CA income prior to marriage from CA taxes.

I'm a red panda

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Re: Tax Benefits to getting married before the end of the year?
« Reply #16 on: March 30, 2016, 10:34:26 AM »
Also, you can double the HSA contribution if you have an eligible HDHP and put your spouse on it.

But if you have an HSA, your spouse becomes ineligible to have an FSA.

therethere

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Re: Tax Benefits to getting married before the end of the year?
« Reply #17 on: March 30, 2016, 11:00:01 AM »
We eloped and married on Dec 30. Perfect decision at the time for us as we had been engaged 2+ years both too lazy to plan anything real. I was unemployed at the time so there was ~$5000 incentive on our tax return. This paid for a nice week long honeymoon, long weekend, and some cash in the bank. If you are planning to go the marriage route  anyway there is no shame in choosing a date that gets you a bonus.

Paul der Krake

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Re: Tax Benefits to getting married before the end of the year?
« Reply #18 on: March 30, 2016, 11:40:55 AM »
Also, you can double the HSA contribution if you have an eligible HDHP and put your spouse on it.

But if you have an HSA, your spouse becomes ineligible to have an FSA.
Unless the FSA is used only for non-medical costs (typically dental and vision). For healthy folks who just have, say, $500 worth of dental checkups a year in a normal year, having both can save a few hundreds in tax.

That being said, I don't bother with the FSA because I vote with my feet and get my (very minimal) dental and vision needs taken care of out of the country. The last time my wife went to a US dentist it was $250 for a routine visit. No wonder the poor have rotten teeth.