EP 136 - Getting Married With High Income? Watch This First (Tax Playbook)

We unpack how marriage can meaningfully lower taxes for high-income earners and how to plan before and after the wedding. We share practical strategies on timing income, creating deductible losses, leveraging participation rules, and using healthcare and equity tools to keep more of what you make.

• why joint filing usually reduces total tax
• doubled standard deduction and home sale exclusion
• capital gains thresholds and NIIT mitigation
• pre‑wedding income shifting and gifting stock
• delaying sales with loans and cash‑out refis
• accelerating deductions in the final single year
• state moves, residency timing, and common law options
• building a joint asset and income map
• combining hours to meet material participation
• short‑term rental losses to offset W‑2 income
• excess business loss limits for joint filers
• hiring a spouse and using an HRA via sole prop
• enabling HRA with rental management work
• stacking QSBS exclusions with smart gifting
• real estate professional status and cost segregation
• estate planning updates for married wealth

Go to prosperalcpa.com/opportunityreport for a personalized video on potential tax savings. Go to http:///www.prosperalcpa.com/apply to explore services and advanced tax planning.

Transcript

Why Marriage Changes Your Taxes

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Most people think that marriage is a romantic decision, and it is, but for high-income earners, marriage is also a very important tax decision, and it could save you a fortune in taxes. In fact, in one instance, we had a client who saved$35,000 in taxes just by having the married filing joint status with his partner. That was enough alone to pay for the wedding. So in this episode, we are going to cover a very important topic, which has to do with marriage and taxes for high income earners. Pay close attention here because this is going to apply to anyone, whether you're thinking about marriage, you're about to get married, or you already are married. We are going to discuss the tax benefits of being married if you are a high income earner, the tax strategies to optimize for taxes right before your wedding or your marriage. And then finally, we're going to cover the strategies that you can do to maximize the tax benefits throughout your marriage and leveraging all the potential opportunities that you may be able to take advantage of because you are married to your spouse. Now, a lot of this stuff is likely to be personal and everybody has different circumstances. So if you feel overwhelmed and you don't have anyone to discuss any of these topics as it relates to tax savings for high income earners in particular as it pertains to marriage as well, you can go to prosperalcpa.com slash opportunity report, and I will personally send you a video illustrating what potential tax savings opportunities may be applicable for you based on your circumstances. Now let's move on with the conversation here. And if you ever had a chance to look at the tax code, there is a gradual increase in your taxes as your income goes up. And we've had the opportunity to run different scenarios and see what would be the tax of each individual had they paid filed their own return compared to if they filed jointly. And we almost always will find that the net effect is an overall reduction in taxes based on the tax treatment when you combine all of your attributes and all of your income onto one income statement or really one tax return. Now, when you have that joint married filing joint tax status on the tax return, you have double the standard deduction. So that standard deduction is typically around$15,000 if you're single or$30, if you're married, filing joint, and that changes every year, increases for inflation. And the itemized deduction is a deduction of your state taxes or for at least your first$10,000, your medical, your uh your uh maybe your mortgage insurance, etc. etc. Um, now we rarely find that the it's like I said earlier, it's incredibly rare that you're gonna see that the taxes actually go up when you file jointly. Another thing here is you just have more assets to work with where you can net one spouse's capital losses against another spouse's capital gains. You have a better overall combined capital gains bracket. It's gonna be a usually you you have one person making more than the other and who has those assets, so you're less likely to fall into the top 20% capital gains tax bracket, you're less likely to pay that net investment income tax, and you also have that double your Section 121 exclusion, which is essentially when you lived in your primary residence for 24 months or two years out of the past five years, you could exclude only$250,000 of the gain when you sell it if you're single. It's twice that amount when you are married filing jointly. And there are other benefits as well, but at a high level, those are some of the more significant concepts that you want to consider just when you think about filing your taxes, not even when we consider the strategies that we can implement and the new concepts that we can pull in and the new opportunities when we are married filing joint. Now, let's talk about what some of these things are. Now, if you are in a relationship and you are engaged and you are absolutely certain that you're gonna get married, let's think about some things we can consider before this happens. And this is especially true if you're gonna get married in the following year. And I went through this exact situation because I got engaged in October of 2025. So I was not yet married, but I knew I was gonna get married in 2026. So here are some last year-end moves or final year of your bachelorhood or bachelorette hood that you can consider to drive to maximize tax savings here. So if it's the year before you're getting married, consider some income shifting strategies. Some of them may involve gifting stock. So if your sputure spouse is going to be in a lower capital gains tax bracket and you need to sell the stock, you can gift your spouse a stock and have them sell the stock and pay a lower capital gains bracket. You can also pay the spouse. If the spouse is in a lower bracket, it may make sense to pay the spouse and have you get the deduction at a higher bracket and then them pay taxes on that amount at the lower tax bracket. Now you might want to be careful with this, however, because this is ordinary income and there are FICA taxes. So make sure before you implement that strategy, you are collaborating with someone who is savvy on the workings of the tax law and can advise you on the best way to look at that. Now, some other potential opportunities. It may include if you have positive income to gift those other potential passive investments. Maybe you have cash-flowing real estate, and maybe you have cash-flowing passive investments in other companies. There may be an opportunity to gift those over and then have the income they're being taxed at the more favorable lower tax bracket of your future spouse. Obviously, there has to be a certain level of trust here, but hopefully you have that down and you have the trust, and you're absolutely certain you're gonna move forward with the marriage before the gifting takes place, of course. Now let's talk about timing of income. And we know that it is gonna be easier for you to have that income tax at a lower bracket once you are married filing joint. So, some of the things we can consider here. We can delay certain income events, such as capital gains events, and also other sales proceeds and other events that are gonna create taxable income. Now, there are other now some of you here listening to this say, hey, well, that all sounds great, but how else can I do this? How can I delay these sales events and these income creation events when I actually need the capital? I need to sell the stock, I need to sell the real estate. Well, here's some things you can consider. You can do a cash out redefy in some of your real estate. That's an untaxable event where you can get more capital that you may need for whatever endeavors you're doing. You can also borrow from your stock portfolio. So you can borrow against your stocks before selling the stocks, and you can even borrow from your 401ks. The amount that you can borrow is going to be the lesser of$50,000 or 50%. So if you have$80,000 in your stocks, you can borrow$40,000. If you have a million dollars in your 401k, you can borrow$50,000. So think about some other ways that you can drive down your income because you have that single filing status. And not only does your bracket grow faster as your income goes up, but you also may lose some of that qualified business income deduction when your income goes over$200,000, especially if you're in what we call a specified service trainer business if you're a business owner. So, some ways that you can do this and minimize your taxes being taxed at the less favorable single filing status, is also by timing and accelerating your expenses. You can use more charitable deductions in the current year. Maybe you front load them. You can also prepay expenses in the final in the final year of your bachelor of bread, bachelorette year. So that could include things such as professional service fees, subscriptions, even taxes, consulting, and coaches, rent on your buildings as well. There are so many things. Just go through all of your expense items and see maybe in December of that year, what can I prepay? Whatever those monthly or regular expected expenses are, what can I prepay to drive down my income for this year? Now I'm not going to be able to write those expenses off next year, but that's okay because I'll be in a more favorable bracket, most likely when I file jointly with my spouse. And also think about moving. If you are going to move into a different state where there's some sort of different tax treatment, or you're moving in with your spouse, or your spouse is moving in with you, think about the potential implications on the state tax side. If you are moving from a place like Florida to Georgia, just consider the potential opportunity to move income away from the states that are taxed and into the untaxed states. So that may be an incentive to frontload the recognition of income if you're going to go into a higher tax state. But also, you gotta look at the whole picture here, and this is another example why you really want to make sure you are collaborating with a skillful tax advisor in some of these decisions that they are significant. Now, another thing I want you to think about here is a lot of states, and we've seen this in with one of our clients in Colorado, are going to allow for a common law marriage. And what you may see here is under certain circumstances, and we've seen an instance where you've lived with your significant other for at least two years, even if you're not legally married, you can file a joint return because the state allows you to recognize yourselves as married filing joint because of certain conditions that maybe it may have been met. And that gives you some real great flexibility where even after the year is ended, so we let's say you've you've met all the requirements of your state to have that common law marriage, and then you come to us, and we are looking at your drafted tax return and that of your sp your future spouse as well, and we can see what is the impact of you guys filing individual returns, doing it separately, or combining it onto one tax return. And the common law marriage is gonna allow you the opportunity to potentially file jointly even before the wedding takes place. So, some other things I want you to think about here is also looking at actually let's drive into this first. Let's talk about after marriage now. So, we looked at all the things we can do before the marriage to optimize and move the income away from the higher tax single filing years. And now that we're getting married, here's what we can think about to maximize tax savings in our marriage. Now, when you first get married, you really want to make sure, and a lot of people probably skip this step. Look at your consolidated income and assets and maybe future inheritances. You may find that your situation is gonna change dramatically because now you have to worry about the tax implications of inheriting your spouse's family assets. And you may find that your spouse has significant unrealized gains, or maybe there's an opportunity, there's unrealized losses, there's losses that we could take in the in their stock portfolio, or there's significant dividend income coming in, and you want to plan for that. So, really being aware of all the financial variables, all the moving pieces of each spouse, and thinking about how they interact with one another on your tax return and with your tax situation and how we can plan for this to optimize wealth building and tax reduction. Now, let's also talk about some other opportunities that now exist for you. Now that you're married filing joint, it's easier to say that you materially participate in activities. And if you are a high incomer, this is extremely important. There's a certain activity threshold that we need to make to take advantage of certain deductions and tax credits that can create significant opportunities for us. And that is gonna help you out if you are a business owner or a real estate investor who inv who's a high W-2. All these things are gonna allow you to potentially create significant savings. So let's say you're a high W-2 or a business owner and you want to be able to create business losses to offset your income. Well, one of the ways you can do this is by purchasing assets that you rent out. That could be heavy equipment or machinery, data centers, and you may even see more benefits if you do this with solar panels that give you access to tax credits as well. But you can't really use those losses unless you materially sorry, unless you materially participate. And you need to have a certain number of hours to say this happens. The most common way that we find people saying that they can materially participate is by you putting in a hundred hours and saying no individual puts any more time than you. As an individual filer, that may be tricky. It may be hard for you to find that 100 hours. But now that you're married filing joint, you can combine your hours to meet that material participation threshold. So you may find that one spouse is doing the is doing the work that brings in lots of taxable income, potentially subject to high taxes, and then the other spouse is going to do the work and put in the time to say that they materially participated. And this is also going to be helpful for short-term rentals. And you've heard me talk about this hundreds of times. And if the average length of stay is seven days or less, and now we materially participate, which is easier to do when we combine our hours, now we can use those losses to offset our W-2s, our stock gains, or our business income. And also another benefit of rental losses or business losses when you're a high W-2 is when you factor in excess business loss limitations. Now, that is the maximum amount of loss that you can take against non-business income. If you're a full-time business owner, you're not really worried about this. You can eliminate all of your taxes potentially on the federal side with rental losses or business or other asset rental losses or real estate rental losses. But if you are a high W-2, you're capped. In 2026, that amount is$512 if you're married filing joint. But the amount of that loss that you can take if you're single, it's cut in half. Just another great opportunity to consider finding ways to create losses and significant losses with assets. In addition to that, you're gonna need to materially participate to have access to certain tax credits, like with solar, the investment, the energy investment tax credit that can offset up to 75% of your taxes exceeding$25,000. So it can be a very powerful trend credit when you're working with an advanced tax strategist. Again, it's easier with the spouse. And then finally, we can't talk about the ability to create losses with spouses without mentioning the real estate professional tax status. The real estate professional tax status is so powerful because it allows you to use real estate and any kind of rental real estate to offset other sources of income. See, normally that real estate is passive and the losses from it are only going to offset your other passive income. And by passive income, I don't mean stock income, it will only offset other business activities or interest in businesses where you're not materially participating. And it's rare that we see that. However, if one of the spouses is working full time in real estate, by full time I mean 750 hours. And we can say, if we can say that more than 50% of their all their working hours among all their working activities is in the real estate trader business, now they can actually use the rental losses to offset their business income. And we make large rental losses by accelerating the depreciation. So we've seen so many instances where we have a high income earning spouse, and the other spouse is maybe at home working with the kids, raising the family, but they find enough time to get that real estate professional tax status, and now your investments in multifamily or self-storage, and maybe you group it with some passive investments with your other investments that you are self-managing, and you may find the opportunity to create six figures or seven figures of losses to offset your other sources of income. We even had one client where we created about four million dollars of losses from his rental portfolio because right before he sold his business, we were able to get take advantage of the wife's real estate professional tax status, and then we looked at all of his real estate portfolio, we accelerated the depreciation and created massive losses to offset the capital gains on the sale of his business. Now let's talk about another really cool loophole. And I don't like to say the word loophole because it's pretty much black and white in the tax law. It's not like we're manipulating anything, it's just a really nice opportunity if you have medical expenses. So you can hire the spouse and you can use an HRA if you're if you have a sole proprietorship. An HRA stands for health reimbursement arrangement, and the way it would work is you can't really take advantage of significant health fringe benefits aside from writing off your your health insurance. But when what I mean here is when you have health expenses, and this may be out of pocket, this may be co-pays, this may be anything that comes out of your pocket beyond your health insurance co-pays. Sorry, your health insurance payments. When you have health and health expenses, you typically are gonna have a really hard time actually creating tax savings from it because it's an itemized deduction, and you only get to deduct a limited amount of those costs that are out of pocket because of all the limitations on it, has to exceed a certain threshold of your income before we can actually write off our health expenses. But there's a workaround. If we can help turn our health expenses into a fringe benefit, then it's a business loss and it offsets business income, which is far more powerful. So, what do we do here? Well, if we give ourselves a health reimbursement arrangement for our business, because we own the business or itself, we're unlikely to be able to see the benefit here because it's actually treated as taxable income from us. So the business deducts it, and then we pay taxes on the benefit. So it's a wash, doesn't do anything. However, what you can do is if you were to hire your spouse, not through an S-corp, but through a sole proprietorship, you now can give your spouse that fringe benefit of a health reimbursement arrangement. And that spouse can then use that health reimbursement arrangement not only to cover their own health care costs, but also the out-of-pocket health care costs of their other family members, including their children and their spouse who happens to be you. So this could be a really cool opportunity. But now you may be thinking to yourself, well, I have an S Corp. How is this going to help me? Well, here's a great opportunity to have a sole proprietorship. If you invest in real estate and you have a schedule e rental, so a sole prop, you're the only owner of your rental property, is not on a partnership return. Now you have the opportunity to hire the spouse to manage the rental property and Put that on the health reimbursement arrangement. So if you have children with special me needs and special legitimate health care deductions, or you have maybe an older spouse, or you're a little older, or you just have for any reason you have high health care costs, here's a way to turn this into a business deduction, which is so much more powerful. And then another thing we can consider here is the qualified small business stock and the ways that we can eliminate the taxes on the gains. Now you may know that you can pretty much you don't have to pay taxes on the first$10 million of stock gains on that qualified small business stock. That's the section 1202 exclusion. And if your spouse has some of that stock, they can exclude the first 10 million on theirs as well. So you may find benefit in gifting the stock, some of the stock before you get married to the spouse. And there are so many other things to consider. Also, again, not only do we want to consider that we are going to have combined assets, you may have inheritance from new spouse members, but also another thing I want you to think about here is think about estate planning and how is this new arrangement going to impact your the future of your assets. Things just got a little bit different, a little bit more complex here because now you have two people that you're planning for, and there are so many different ways to think about how we're gonna plan for the succession of either you or your spouse, and what is the tax treatment of that, and how can we do this in the most tax-effective way? So obviously, there's lots of things to consider here, but when you're really doing this right and you're aligned and you have the objective to build long-term wealth and protect it from the government, being aware of how your situation and how your relationship with your spouse can create huge opportunities to tax reduction can be an incredible tool that can save you a fortune in taxes. And if you're interested in learning any more about how any of this could apply to you and how you can leverage the family dynamic to minimize your taxes, I encourage you to apply for services of ours. Go to prosperal as prosper with an L CPA.com slash apply, and I will personally send you a video walking through what we may be able to accomplish if we evaluate your situation and we were to implement advanced tax planning and consider the family dynamics to drive down taxes. Alright, have a wonderful day and continue saving taxes. Have a great day.