Daily Press (Sunday)

4 ways married couples can use tax breaks to build wealth

- By Elizabeth Ayoola NerdWallet

The investing informatio­n provided on this page is for educationa­l purposes only. NerdWallet Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investment­s.

“Two is better than one” is an old adage that translates to finances, too. Two incomes can go much further than one, especially between married couples.

People who say “I do” also have access to various tax breaks that can give them a financial edge when it comes to building wealth. For instance, married couples filing their taxes jointly get a standard deduction of $27,700 in 2023, while single filers get a $13,850 deduction.

How can married couples act on the many tax breaks they have access to and use them to build wealth? Two certified public accountant­s share a few strategies for couples to consider.

Strategy 1: Investing

When married couples get a tax deduction or tax credit, there’s an opportunit­y to invest that extra money. There are a string of ways to invest the money, but couples could benefit from investing in themselves, said Sheneya Wilson, a CPA and founder of Fola Financial in the Bronx in New York City. Couples may choose to use their tax savings to invest in courses that improve their skills, market value and salaries, she said.

Retirement accounts such as 401(k)s, IRAs or regular brokerage accounts are also an option for couples. Investing those extra dollars from tax breaks means couples have more money that can potentiall­y grow and enjoy the benefits of compound interest.

Wilson added that married folks can also consider alternativ­e investment­s, such as commoditie­s, gold, silver, royalties or music catalogs.

Ultimately, couples can choose investment­s that align with their goals and legacy.

“The best investment­s are going to be in line with how that person wants to leave an influence on the world,” Wilson said.

Strategy 2: Real estate

Married couples who own a property may be able to sell it and exclude some of the real estate capital gains tax from their income. For married couples filing jointly, that means they can keep up to $500,000 of the profit tax-free. Single filers, on the other hand, are capped at $250,000.

“Now think about what you can do with around $500,000 of tax-free income,” Williams said. That extra money could go toward investing in another property, she added.

Note that couples have to own the house, use it as their main home, live there for at least two of the five years before selling and meet other rules in order to qualify for the exclusion.

Strategy 3: 529 plans

529 plans — investing plans for education that allow tax-free growth and withdrawal­s — are another way couples can use tax breaks to build wealth, said Jasmine Young, a CPA and founder of Southern Heritage Financial Group in Atlanta.

“It could be your niece, your nephew, your cousin, it could be you, whoever’s gonna use the money for educationa­l expenses,” Young said. “That’s one way for you to reduce your tax liability and put the money somewhere that’s going to give you a resource to build generation­al wealth.”

Some states offer deductions or credits for 529 plan contributi­ons. A perk for married couples is that in many states, joint filers can deduct double the amount than single filers, lowering their taxable income. The amount joint filers can deduct varies from state to state.

Another way married people can benefit from 529 plan tax benefits is with the federal gift tax exclusion. While 529 plans don’t have an annual contributi­on limit, contributi­ons are considered “gifts” by the IRS, which means gifting over a certain amount could lead to extra paperwork at tax time. In 2023, those married filing jointly could gift $34,000 without needing to file a gift tax return versus $17,000 for single people.

Married couples who take advantage of this larger limit can save more annually for their kids or loved one’s kids and potentiall­y help them grow wealth faster.

Another wealth-building strategy couples can potentiall­y use beginning in 2024 is rolling unused funds in a 529 account into a Roth IRA account for the beneficiar­y. By rolling unused funds into a Roth IRA, the beneficiar­y — be it a child or family member — can get a head start on saving for retirement. There are several conditions account owners must meet to do this, so consult a financial adviser beforehand.

Strategy 4: Entreprene­urship

If one spouse is an entreprene­ur, or a couple runs a joint venture, there’s an opportunit­y to write off business losses during tax season, Wilson said.

“If you are married, filing jointly and your spouse is investing in starting a business, there may be a net loss from that business venture on the joint tax return because that spouse was investing in maybe educationa­l courses (to) start their business,” she said.

In 2023, married couples with their own business can take a loss of up to $524,000, compared with $262,000 for single filers. The dollars that may have gone to paying taxes can be funneled into growing an existing business, starting a new one or paying down debt.

Couples curious about exploring more strategies they can implement may want to speak with a finance profession­al like a tax adviser or financial planner.

 ?? SEAN GALLUP/GETTY ?? Married couples can use multiple strategies to build wealth when they take advantage of various tax credits and deductions.
SEAN GALLUP/GETTY Married couples can use multiple strategies to build wealth when they take advantage of various tax credits and deductions.

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