Married couples can benefit from various tax breaks in the form of credits and deductions. With the right strategy, couples can take advantage of these tax breaks to build wealth. One strategy couples can employ is to use the money they save through tax credits and deductions to invest in themselves and the market. Couples can also consider reinvesting tax-free funds from the sale of their home or using a 529 plan to build wealth for future generations. By writing off business losses, you also have the opportunity to reduce your taxable income and increase your wealth.
The old adage “two is better than one” applies to finances as well. Two incomes are much better than one, especially for married couples.
Those who answer “I do” may also qualify for a variety of tax breaks that can give them a financial advantage as they build wealth. For example, a married couple filing taxes jointly in 2023 will receive her $27,700 standard deduction, while a single filer will receive her $13,850 deduction.
How can couples take advantage of the many tax breaks available to them and use them to build wealth? Two certified public accountants share some strategies couples should consider.
Strategy 1: Investment
When couples receive tax deductions and credits, they have the opportunity to invest that extra money. There are many ways to invest money, but couples may benefit from investing it themselves, says Sheneya Wilson, a certified public accountant and founder of Fora Financial in the Bronx, New York City. say. Couples may choose to take advantage of the tax savings and invest in courses that improve their skills, market value and salary, she says.
Retirement accounts such as 401(k)s, IRAs, or regular brokerage accounts are also options for couples. Investing the extra money earned through tax relief means couples have more money, potential for growth, and the benefits of compound interest.
Mr Wilson added that married people could also consider alternative investments such as commodities, gold, silver, royalties and music catalogs.
Ultimately, couples can choose investments that align with their goals and legacy.
“The best investments are going to be in line with the impact you want to leave on the world,” Wilson says.
Strategy 2: Real estate
Couples who own real estate may be able to sell it and exclude some of the real estate capital gains tax from their income. Married couples filing jointly can keep up to $500,000 of their profits tax-free. Single filers, on the other hand, have a cap of $250,000.
“Then think about what you can do with about $500,000 of tax-free income,” Williams says. That extra money could be used to invest in other real estate, she added.
To qualify for the exclusion, the couple must own the home, use it as their primary residence, live there for at least two of the five years before selling, and meet other rules. Please note.
Strategy 3: 529 Plans
Jasmine Young, a certified public accountant and founder of Southern Heritage Financial Group in Atlanta, says 529 plans (education investment plans that allow for tax-free growth and withdrawals) are a great way for couples to take advantage of tax breaks. He says it’s another way to build wealth.
“It could be your niece, nephew, cousin, or you who will be using that money to pay for their education,” Young says. “This is one of his ways to reduce his tax liability and put that money where it can be used to build generational wealth.”
Some states offer deductions or credits for 529 plan contributions. The perk for married couples is that in many states, joint filers can deduct twice as much as single filers, reducing their taxable income. The amount that joint filers can deduct varies by state.
Another way married people can benefit from the tax benefits of a 529 plan is through the federal gift tax deduction. Although a 529 plan has no annual contribution limits, the contributions are considered “gifts” by her IRS. This means that gifts over a certain amount can result in extra paperwork at tax time. In 2023, married people filing jointly will be able to gift $34,000 without having to file a gift tax return, compared to $17,000 for single people.
Couples who take advantage of this significant limit can potentially save more each year for their children or the children of a loved one, and grow their wealth faster.
Another wealth-building strategy that couples may be able to use starting in 2024 is to transfer unused funds from a 529 account to a beneficiary’s Roth IRA account. By moving unused funds into a Roth IRA, your beneficiaries, whether they be children or family members, can get a head start on saving for retirement. There are some conditions that the account owner must meet to do this, so please consult your financial advisor beforehand.
Strategy 4: Entrepreneurship
If one spouse is an entrepreneur or the couple runs a joint venture, there is an opportunity to write off business losses at tax time, Wilson says.
“If you’re married, filing jointly, and your spouse has invested in a business, that spouse probably invested in an educational course to start a business, so your joint tax return lists that business as There could be a net loss from,” she says.
In 2023, a married couple with their own business could lose up to $524,000, while a single person could lose $262,000. Money that might have been used to pay taxes could be funneled into growing an existing business, starting a new business, or paying down debt.
Couples who want to explore more strategies they can implement may want to consult a financial professional, such as a tax accountant or financial planner.
