Paying taxes is a burden that everyone has to bear but the Internal Revenue Service does have a few tax breaks and deductions that help ease your tax burden. Also, taxes are different for various categories of people, so for example if you are from a low to moderate income group, you will be liable to a certain deduction and can pay less tax.
In the case of unmarried couples, you may end up paying less than married couples and at times you can also claim your partner as a dependent and pay less tax. Even if you plan on selling your home, as long both of you have a share of the house, you can get the same tax exemptions and deductions.
STANDARD INCOME TAX DEDUCTIONS FOR UNMARRIED COUPLES
Up until 2003, if you were an unmarried couple who was living together, you would have had to pay much less taxes than a married couple. Both of you would have been counted as single workers and put in the 28 per cent tax bracket separately. And a married couple who was working would be put under the 31 per cent tax bracket.
You would both also be entitled to a standard deduction of $4,400 each as an unmarried couple. But if you were a married couple, you would both only be entitled to a deduction of $7,350 together. But now, married couples are entitled to a deduction that is double that of single taxpayers.
Taxes On Social Security
When you start receiving social security benefits as an unmarried couple, you would have to pay taxes for this only if your base amount exceeds $25,000. In contrast, as a married couple you have to pay taxes, if your base amount exceeds $32,000.
This base amount is calculated after including the total income along with 50 per cent of social security benefits and any interest on investments where you did not have to pay any taxes.
This means that as an unmarried couple, you could both earn up to $50,000 together, before you have to pay any tax on social security benefits.
You can always check the Internal Revenue Service website for more information on these social security taxes.
Claiming A Dependent
As an unmarried couple, you can claim your partner as a dependent if you provide 50 per cent of his or her support. Your partner should have been living with you for over a year and must also earn less than $3,700 and that does not include social security benefits. Once your partner qualifies as a dependent, you will be entitled to an exemption of $3,700.
Head Of Household Status
If you also have a child together, you can claim head of household status for the child, if you had claimed the child as a dependent on your tax return forms. The only criteria is that the child should have resided with you for over a year and you provided complete support for him or her. Also, both parents cannot claim head of household status so you must have a joint agreement as to who will file the claim.
As head of household, you can claim your child as well your partner and any other adult residing with you as dependents. You will be given a maximum of three exemptions of $3,700 each.
If you are divorced, then you can claim the child as a dependent only if the child is staying with you, unless you both arrive on a mutual agreement. In addition, the child must not have paid half of the amount of his care and should be completely supported by you.
How Tax Affects Sale Of Your Home As An Unmarried Couple
When you decide to sell your home as an unmarried couple, you will be both given an exemption each of $250,000 on the first capital gain that you make from the house. But you both must have resided and owned the house for two years atleast before selling it.
On the other hand, married couples are given an exemption of $500,000 on their first capital gain. But atleast one spouse must have ownership rights and the couple must have lived together in the house for two years, before the sale.
As an unmarried couple, you have certain tax-related advantages and may also be a host to a number of additional tax exemptions, as compared to married couples. But you should check the website of the Internal Revenue Service beforehand to see if you meet all the necessary criteria. Once you have qualified for the tax exemptions, you can deduct these from your tax return forms and pay less tax.
Stephen Elmore