Can I Use My Spouse for Tax Avoidance in Washington State?
If you’re interested in tax planning strategies in Washington State, you should consider methods that involve your spouse. Many critics of modern marriage say it has become a purely financial arrangement, but this is also one of marriage’s key benefits. Use your marriage to your advantage, and you may be able to avoid various unnecessary taxes with help from your spouse. To discuss these potential strategies in more detail, speak with a tax planning lawyer in Spokane.
Gifting: The Obvious Spouse-Based Tax Strategy
Perhaps the most obvious way to benefit from your spouse is through gifting. Washington does not levy any taxes on lifetime gifts, and you can make as many gifts as you like. By distributing your wealth to your spouse, or combining with your spouse to make joint gifts to the rest of your family, you can reduce estate taxes when you pass away. Another key benefit is the freedom to watch your loved ones enjoy your gifts while you’re still here.
Unlimited Marital Deduction
Washington’s estate tax has an exemption of just under $2.2 million. If your family estate exceeds this amount, you can leave the excess to your spouse outright or in trust at your death and gain an exemption from this estate tax. There are no limits to this spousal deduction. Note that your spouse’s estate will be evaluated for estate tax at their death and the assets you leave them may be subject to their estate tax, if proper planning is not implemented. This strategy may also offer advantages for federal estate taxes (which have a much higher exemption amount).
Tax Strategies for Spouses Who Own Businesses Together
If you run a business with your spouse, you may pursue various tax planning strategies. These strategies may include treating an unincorporated business as a sole proprietorship owned by one spouse. You might also convert a spousal partnership into an S-Corp, assuming you can afford to pay yourselves relatively low salaries. Another obvious strategy is to dissolve a partnership and hire your spouse as an employee instead.
Spousal IRA
Another relatively straightforward strategy is a spousal IRA. This is particularly beneficial when one spouse earns much more than the other. This primary breadwinner can contribute to the IRA of their non-working spouse, thereby increasing tax benefits for the whole family. Spouses may consider this approach when one partner decides to become a stay-at-home parent – allowing the family to save for retirement on a tax-free or tax-deferred basis (depending on whether they choose a traditional IRA or a Roth IRA).
Tax Strategies After Your Spouse Passes Away
You should also be aware of certain effective strategies after one spouse passes away. One example is a credit shelter trust, and they are funded with the decedent’s portion of the family estate with instructions from their Will. The surviving spouse can access the trust funds throughout the rest of their life. When the second spouse passes, the trust assets pass directly to beneficiaries with minimal tax implications. This is particularly necessary in states, like Washington, that have their own state estate tax because, unlike the federal estate tax, there is no ‘portability’ of credit to a surviving spouse. The use of a credit shelter trust allows the first deceased spouse to use their credit to the fullest extent possible.
Can a Tax Planning Lawyer in Spokane Help Me?
A tax planning lawyer in Spokane may be able to help you assess various strategies, including those that involve your spouse. While there are many ways to mitigate tax issues in Washington State, the most appropriate strategies depend on your unique circumstances. To discuss your specific situation, schedule a consultation with Moulton Law Offices today.
Source:
investopedia.com/articles/retirement/06/marriedperks.asp
