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NEWSLETTER: Love And Taxes



February 14, 2024


Welcome back. This week’s newsletter: Love and Taxes. We'll be introducing a team member who happens to be married to an accountant! We’ll also talk about tax savings and strategies for married filing jointly, and tax planning for love! Join us as we discover why Valentine’s Day is so important.



TAX LAWS: WHAT YOU NEED TO KNOW 



Being married has plenty of perks, including tax benefits and savings. Some tax credits you lose when married filing separately include:


  • Credit for adoption expenses - The Adoption Tax credit is $16,810 for 2024, although this tax credit phases out as income increases. This credit can be claimed if you spend money on adoption in that year. If it’s a U.S. adoption, the adoption doesn’t have to be final in that year.

  • Education - Credits like the Lifetime Learning Credit or the American Opportunity Credit can be lost if you’re married and filing separately. Under the provisions of these tax credits you also lose the ability to deduct student loan interest and tuition and fees.

  • Child and Dependent Care Expenses Credit - You may qualify if you pay someone to care for your children under 18, disabled spouse, or mentally or physically challenged dependent. The credit can be up to $1,050 for one qualifying dependent or $2,100 for two or more qualifying dependents.

  • Earned Income Tax Credit - You can’t take the earned income tax credit if you’re married and filing separately. This credit offsets federal payroll and income taxes for workers who are paid low wages. If you have 3 or more children, you get a credit of up to $7,830, for incomes less than $63,398.


Here are a few reasons one might want to file separately, such as:

  • Being able to deduct out-of-pocket medical expenses if they exceed AGI.

  • Getting or planning to get a divorce. During the process, you can still file jointly,  although it may be more convenient to keep your finances separate during this time.


Doing things together as a married couple is good for your relationship and your finances, so consider married filing jointly this year.


PLANNING FOR LOVE




Thinking about popping the question this year? Don’t just follow your heart - follow your wallet! There are several ways marriage can help with your tax planning strategies.


  • Estate preservation - Money left to a spouse isn't subject to the federal estate tax, usually protecting the deceased spouse’s estate from taxation until the surviving spouse dies.

  • Potential for higher IRA contributions - Even if one spouse doesn't earn income, they can essentially double their IRA contribution limit. Both spouses can contribute $7,000 ($8,000 if they’re 50 or over). Additionally, if you’re single or filing separately you can’t contribute to a Roth IRA if your income is over $161K in 2024. But it's $240K if you’re married and filing jointly.

  • Solo 401(k) contributions - If you employ your spouse and they are salaried, your after-tax contributions to your 401(k) can go from $69K to $138K. Although, keep in mind that total contributions, before and after tax, cannot exceed $69K each. 

  • Pay for one tax return rather than two -  Being married you will save on the cost of filing, hiring one CPA,  and paying for one tax return.This not only streamlines your tax return process, it saves you time and money too. Brilliant!

  • It’s possible to be in a lower tax bracket - If one spouse has a substantially lower income than the other, filing a joint return could result in the lower income pulling the higher one down into a lower bracket, reducing your overall taxes.

  • Turning a loss into a gain - If one spouse has a negative income and isn't eligible for certain deductions, the spouse with a positive income may be able to take those unused tax deductions and claim the other spouse’s losses as a tax write-off when filing a joint return. With two people contributing to itemized deductions (vs. standard deductions), it makes it easier to meet the threshold.

  • Accredited Investing - This is interesting,  being married and filing jointly for couples with similar income makes meeting the accredited investor threshold easier. You can become accredited  sooner with two people contributing to the net worth requirement of over $1 million (with some exclusions). Together, each individual could make $150K for a total of $300K instead of having to earn $200K individually. 


Disclaimer:  Here’s a concept: you could always get married for reasons other than taxes!



DON’T FORGET 

Check out these upcoming important  tax deadlines:

  • February 15, 2024 - Reclaim your exemption from withholding

  • March 15, 2024 - Returns for partnerships and S-corps are generally due. If you request an automatic extension, these will be due on September 15.

  • April 1, 2024 - Required minimum distributions are due if you turned 73 in 2023

  • April 15th - Last day to make a contribution to your IRA, HSA,  or Coverdell education savings account for the prior year. 

  • April 15th - Mail your individual or corporate  income tax return by this day. If you are requesting an automatic 6-month extension, you still need to pay any taxes due by April 15th. 

  • April 15th - First quarter 2024 estimated income tax payments are due by April 15th. 


ANNOUNCEMENTS



62 days until Tax Day! The countdown continues.


IN THE SPOTLIGHT - 

 


This week, we’ll talk to Rebecca Fox, our dedicated Office Assistant at our Lone Tree, Colorado location. As an Almost Colorado Native, she has lived in the state for the longest period, having originally come from El Paso, Texas  and Maryville, Tennessee. Rebecca's journey led her to the financial industry, utilizing her diverse background in speech pathology, editing, writing, and project coordination. 


At WD Wealth Strategies, she applies her skills in administration and project management. Rebecca admires the company's commitment to continuous improvement and values the collaborative, learning-focused culture. In her free time, she enjoys hiking and traveling with her husband and spending time with her sweet Shiba Inu puppy, Beauregard Sassafras. Beau himself is  an up-and-coming blogger hosting his own page, The Beauregard Chronicles



WHAT SHE’S WATCHING 

Rebecca is listening to another money podcast we’re excited to check out: “I recently stumbled upon How To Money. It’s engaging, motivating, and on a simple enough level that I always walk away empowered and educated.”


WHAT SHE’S READING 

“I am re-reading Everybody Always by Bob Goff. It’s a companion volume to his book Love Does. Both books are written in short chapters detailing random encounters in his life that illuminate how love actually does—it’s not just an idea or words. Everybody Always is more of the same. Both books inspire me to walk the walk, not just talk the talk. We each have a chance to impact people for good. Likewise, in the warp and weave of life, others are daily leaving indelible imprints on our lives.”


TAKE A BREAK

This week, test your crossword skills on our Love Crossword Puzzle. How is your romance vocabulary? Sit down with your partner and passionately work out this puzzle together. Submit your answers to info@wdwealth.com



We had several responses to the last issue’s Take a Break: Some states have some quite interesting tax laws still on the books. Which of these four laws is NOT real and what state do you think it comes from? Let’s checkout the answers!


  1. If you intend to purchase fruit in this state, we’d advise buying it from a grocery store. Fresh fruit is not taxed when sold in stores in this state— however, if you decide to grab some fruit from a vending machine, you’ll find yourself paying a hefty 33 percent sales tax. This is an actual law on the books in California.

  2. If you purchase cattle in this state, you won’t be shocked to find that the emissions of the livestock will be measured and you’ll be charged an extra 2 percent on the sale of the animal. You might have guessed this is Texas. If you did, you guessed wrong! This law does not exist in any of our states. Yet. 

  3. A state famous for its bagels, this state charges you an extra 8 cents if you purchase your bagel sliced. Uncut bagels are sold tax-free. This is an actual law on the books in New York. 

  4. Buying a cup of coffee in this state comes with an extra 2.9 percent tax. This tax isn’t for the coffee but the lid on your coffee cup. You’ll also find yourself paying this extra tax on other packaging the state deems “nonessential,” including straws, napkins, and cup sleeves. Talk about green tax laws! This is an actual law on the books in Colorado. 


Want to chat? 


See you next time!


If you missed last week’s newsletter, click here to catch up.


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