Filing taxes as a married couple offers several advantages over single filing when done strategically. Joint filers qualify for higher standard deductions, can fully utilize tax credits, contribute more to retirement accounts, and may realize more savings by optimizing deductions. However, in limited cases, separate returns may be beneficial.
This guide covers key things to consider when filing as a married couple in 2024 to maximize savings and minimize your tax liability.
File Jointly for Higher Standard Deduction
The most significant benefit of filing jointly is the higher standard deduction offered to married couples. For 2024 tax returns, the standard deduction amount for joint filers rises to $29,200 as per IRS inflation adjustments. This is nearly double the $14,600 standard deduction for married couples filing separately.
This higher deduction amount translates to lower taxable income for those not itemizing deductions on Schedule A. By claiming the standard deduction, fewer couples will now have to detail out all medical, charitable etc. expenses.
Filing jointly also allows full use of several common tax credits claimed by families:
- Earned Income Tax Credit (EITC): Phases out at higher income limits for joint return filers. Can be claimed only on joint returns if one spouse is a nonresident alien.
- Child Tax Credit: Phaseout threshold rises to $180,000 for couples filing jointly. Income limits are halved for separate returns.
- Child and Dependent Care Credit: Credit percentage drops from 35% to 20% for separate filer incomes over $15,000. The income limit for joint filers is significantly higher at $43,000.
The combined tax savings from the higher standard deduction and credits make joint filing the better option for most couples. According to IRS data for prior tax years, over 95% of married taxpayers file jointly instead of separately.
Maximize Retirement Account Contributions
Contributing to 401(k) and IRA retirement accounts helps taxpayers reduce their taxable income. These accounts allow making pre-tax contributions, lowering current year taxes.
As joint filers, couples can contribute more to these retirement plans owing to higher income limits:
- 401(k) Contribution Limit: Rises to $22,500 for 2024 plus $7,500 catch up contribution for taxpayers 50 years and above. The limit is per person, allowing couples to contribute up to $45,000 if both spouses have 401(k) plans.
- IRA Contribution Limits: Remain unchanged at $6,500 plus $1,000 catch up. Income limits rise to $218,000 for joint return filers to make full contributions to a Roth IRA.
- Income Limits: Thresholds for taking full deductions are significantly higher for couples filing jointly than singles for traditional IRAs.
Maximizing 401(k) contributions should be the top priority for joint filers looking to reduce taxable income. This allows deferring more taxes to future years since retirement withdrawals are taxed as ordinary income. Funds can be invested across stocks, bonds and mutual funds for tax-deferred growth.
Decide Whether to Itemize Deductions
While the higher $29,200 standard deduction will be optimal for many joint filers, couples should still calculate whether they can claim larger write-offs by itemizing deductions instead.
Schedule A deductions that may provide higher cumulative savings include:
- Mortgage interest and property taxes
- State and local income taxes (SALT)
- Medical expenses exceeding 7.5% of AGI
- Charitable donations
- Unreimbursed employee expenses
For instance, a couple with $8,000 in mortgage interest, $5,000 state taxes, and $7,000 medical bills would have $20,000 total deductions. Itemizing these on Schedule A would provide greater tax savings over claiming the $29,200 standard deduction.
Tax preparation software or an accountant can quickly run the numbers to determine the optimal choice based on your financial profile.
Leverage 0% Capital Gains Tax Bracket
If taxable income after all deductions and exemptions amounts to less than $89,450 for joint filers, qualified dividends and long-term capital gains from selling assets like stocks or mutual funds are taxed at just 0%.
This presents a tax planning opportunity for couples. By keeping taxable income low, you can sell appreciated investments held for over a year to realize gains with no tax impact in 2024.
For instance, say you bought 100 shares of an S&P 500 index fund for $50 per share in 2020. The fund is now trading at $80 per share, representing $3,000 unrealized gains. Selling the shares would attract 15% capital gains tax normally. However, if your joint return taxable income is under $89,450, there would be no taxes owed on the $3,000 profit.
Harvesting these gains in a 0% tax year allows rebalancing your portfolio. Just ensure your income remains below the threshold through other deductions and contributions.
Consider Pros and Cons of Separate Filing
While less common, filing separate tax returns may benefit select couples if:
- You have exceptionally high medical expenses. The 7.5% AGI threshold is lower for separate returns.
- You expect a large settlement through divorce or separation. Asset transfers between spouses may have fewer tax implications when filed separately.
- One spouse has complex finances or is undergoing an audit. Separating returns simplifies filing and reduces joint liabilities.
However, the IRS notes higher audit chances, loss of certain credits and deductions, higher taxes, and delays in processing for separate returns.
For example, separate filers cannot claim education credits like the American Opportunity Credit or student loan interest deductions. Tax rates also rise, with incomes over $578,125 for joint returns taxed at 35% versus 32% for separate filers.
Consulting a tax professional is highly recommended before deciding if separate returns work better given your financial situation.
Final Thoughts
Implementing smart filing strategies allows married taxpayers to maximize deductions, reduce tax liability, and retain more of their hard-earned money. Filing jointly unlocks several credits and benefits unavailable to separate filers while allowing couples to fully utilize retirement accounts, capital losses, deductions etc.
However, separate filing should also be evaluated based on individual circumstances like divorce cases, audit risks etc.
Thoroughly planning your 2024 tax return filings as a team, contributing to tax-advantaged accounts, realizing capital gains strategically etc. sets up married couples for short and long term tax savings.