It’s February, and love is in the air. Restaurants have been advertising intimate specials for two. Florists have rolled out the red carpet. And in the greeting card racks across the country, Hallmark’s most accomplished poets have presented their new verse.
We’re talking about Valentine’s Day, of course. 62% of Americans celebrate the occasion. (Of course, that means the rest of us will just try to keep our heads down and pretend it’s just another blah February day.) But with all those Cupid’s arrows flying around, shouldn’t the tax man get a little love, too?
The National Retail Federation estimates that Americans will have spent $19.6 billion this Valentine’s Day. That includes $4.7 billion on jewelry (for the truly lucky ones), $3.7 on going out, $2 billion on flowers (including, naturally, 250 million roses), $1.7 billion on chocolate and candy, $894 million on greeting cards, and $751 million on pets. That’s all before we get to the champagne and candles. (Guys, we know you don’t care for scented candles. Just think of them as proof that your Valentine trusts you with fire.)
Naturally, all that spending means taxes. The average sales tax rate here in the U.S. is 8.454%, which suggests that state and local governments will have collected over $1.5 billion. Of course calculating that tax isn’t always as easy as multiplying your purchase amount by the local rate. Some states define candy as “groceries” or “unprepared foods” and tax them at lower rates or exempt them completely. (True love may be pure and simple. Taxes, not so much.)
The real action comes once you and your Valentine get married. For years, the so-called “marriage penalty” has taxed married couples at a higher rate than single filers earning the same combined income. The Tax Cuts and Jobs Act eliminates that penalty for couples earning up to $400,000. But above that amount, it bites hard. Singles don’t hit the 37% top tax bracket until $500,000 of taxable income, while joint filers hit it at just $600,000. For a couple earning $500,000 each, that’s a difference of $8,000 in total tax — enough to buy a lot of roses!
Of course, there are tax advantages to tying the knot, too. You can make unlimited cash gifts to your spouse. Your estate tax unified credit doubles, to $11.2 million. (Maybe that’s why rich old geezers marry younger women . . . yeah, right, they do it for the tax planning!) You can make twice as much tax-free profit selling your home than if you’re single. What’s not to love about that?
And if marriage doesn’t go as planned? What kind of tax advantages are available then? One can still console themselves with tax-advantaged alimony payments — at least, for agreements finalized before the end of 2018. After that, you can kiss the alimony deduction goodbye! But you might also get a tax deduction if you donate all the stuff your ex gave you to charity. No sense cluttering up your house with painful memories, right?
Here’s something we know you’ll love, no matter what your relationship status: keeping more to spend on yourself or your sweetheart even when it’s not Valentine’s Day. The key to making it work, of course, is planning. So call us when you’re ready to pay less tax every day!