US Federal Taxes: Inheritance, Marriage, Expenses and Deductibles

Inheritance

An inheritance tax is imposed by some states on the recipients of inherited assets. In contrast to an estate tax, an inheritance tax is paid by the recipient of a bequest rather than the estate of the deceased. Only six states have an inheritance tax as of 2024.

The estate tax is a tax on the transfer of property after someone’s death. It pertains to the estate itself before assets are distributed to the beneficiaries. We have previously covered estate tax here:

Both inheritance tax and estate tax are complex topics with serious tax implications for beneficiaries and estates, with careful consideration of both federal and state laws. Consulting the tax professional at Del Sol CPA and Associates can provide valuable guidance tailored to individual circumstances, and help you ensure compliance with IRS regulations.

Marriage

Getting married is a major step in life – and it can have a major impact on your tax return. This section will help you understand the implications of marriage on your tax situation, and how you can make smart choices when it comes to time to file. Congress has made recent efforts to limit the “marriage penalty” by raising the thresholds of most tax brackets to exactly double that of single filers. However, the top tax bracket is an exception; for 2025, the 37% tax rate applies to incomes over $626,350 for single filers and over $751,600 for married couples filing jointly.

Married couples can also leave any amount of money to a spouse without generating estate tax, which provides tax protection if one of the spouses dies.

File jointly or separately?

If you are married, you are still able to file your taxes separately. This comes with a number of restrictions, and in most cases, is not beneficial to your tax bottom line.

Generally, filing jointly comes with more advantages than filing separately. Below is a summary of the potential benefits of filing jointly:

Taxpayers filing jointly typically are entitled to a larger standard deduction than single taxpayers
If your spouse and you have substantially different salaries, the lower one can pull the higher one down into a lower bracket, reducing their overall taxes.
Spouses can take advantage of unused tax deductions as long as one of you qualifies for them.
A married taxpayer without paid employment may contribute to an IRA using joint income.
Married couples can get greater charitable contribution deductions, resulting in a greater amount of tax deductions.

Filing separately has far fewer advantages and imposes a number of limitations and restrictions:

If one spouse decides to itemize, the other cannot claim the standard deduction
Shared deductions are restricted and cannot exceed what would be allowed on a joint return
It is more difficult to qualify for some tax credits, such as:
1. Earned Income Tax Credit
2. Education credits
3. Exclusions or credits for adoption expenses
4. Child and dependent care credits

There are, however, some cases where it may benefit you to file separately. If you have high out-of-pocket medical bills, filing separately may allow you to deduct these costs by lowering your adjusted gross income.

For couples with relatively similar and very high incomes, it is possible that filing separately may also lower your overall tax liability. We recommend consulting a tax professional if you are in this situation and considering filing separately, to ensure that you are choosing an optimal strategy

Important note: The IRS considers you to be married for the full year if you are legally married as of December 31 of the tax year.

Expenses and Deductibles

Gaining a clear understanding of how specific expenses are treated by U.S. tax laws can lead to substantial deductions and potentially lower your overall tax bill. It is essential to have an awareness of what types of expenses can be used as deductions and to keep clear records of these expenses for tax filing purposes.

Below we will provide an overview of what it means to choose between standardized and itemized deductions, as well as an introduction to some of the most commonly claimed major deductions available to taxpayers.

Note: Another mechanism for reducing your tax liability is making use of tax credits. Those are beyond the scope of this article and may be covered in a future post!

Standardized Deduction vs. Itemized Deduction

A deduction is an amount subtracted from your taxable income which lowers the total amount subject to taxation. Taxpayers may choose between the standard deduction or itemized deduction (but cannot choose both).

The standard deduction is simply a flat amount deducted from your taxable income. The amounts vary depending on your filing status; the 2024 deduction amounts are listed below:

Filing status	2024 standard deduction
Single or Married filing separately	$14,600
Married, filing jointly, or surviving spouse	$29,200
Head of household	$21,900

Universally Deductible Expenses

You can claim these deductions whether you choose the standard deduction or to itemize:

Deductible Expense	Explanation and Limitations
Alimony payments	Only for separation agreements executed before 2019
Business use of your car	Calculated by the standard mileage rate (67 cents per mile for 2024) method or the actual expense method (detailed records must be kept). More info
Business use of your home	If you work from home, you can claim up to 300 sq feet at $5 per square ft.
IRA contributions	Full amount; may be limited if you are covered by a work retirement plan. Roth IRA contributions are not deductible.
Health savings plan contributions	Complex rules. Refer to IRS guidelines
Penalties on early savings withdrawals	Included on line 18 of Form 1040
Student loan interest	$2500 or the amount of interest paid in tax year, whichever is less. Must be single or married filing jointly. More limitations and requirements listed here
Teacher Expenses	Up to $300
Work-related education expenses	Only applicable for: A self-employed individual An Armed Forces reservist A qualified performing artist A fee-based state or local government official A disabled individual with impairment-related education expenses More details here
Moving expenses	For military personnel only

Itemized Deductible Expenses

Itemized deductions are composed of a list of eligible expenses. Each deduction reduces your taxable income by a given amount; itemized deductions vary greatly for every individual, depending on your circumstances. You can deduct these expenses if you choose to itemize:

Deductible Expense	Explanation and Limitations
Bad debts	Significant proof and documentation required - see details
Canceled debt on home (e.g. due to bankruptcy)	Refer to Form 1099C for cancellation of debt over $600
Capital losses	If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) Amounts in excess of the above limits can be carried forward to later years. Capital losses are reported in detail on Form 8949 and summarized on Form 1040 Schedule D
Charitable contributions	Only gifts to qualified organizations are eligible. Can include gifts of property or cash. Details and documentation must be provided. Any gift over $250 must also be acknowledged in writing by the recipient. More restrictions and rules may apply, see details here
Gains from sale of your home (primary residence)	Exempt if you pass the residence and ownership tests, otherwise subject to capital gains tax. Refer to Property Sales section above, or IRS guidelines here
Gambling losses	Included on line 18 of Form 1040, from any winnings reported on your Form W2-G
Home mortgage interest	Deduct interest on the first $750,000 ($350,000 if married filing separately) of debt. For debt incurred before Dec. 16, 2017, the limit is $1 million ($500,000 if married filing separately). IRS Reference here
State & local taxes on property, sales, or other income	Up to $10,000 ($5,000 if married filing separately). Ineligible taxes and fees include: Federal income taxes Social security taxes Transfer taxes Stamp taxes. Homeowners association fees. Estate and inheritance taxes. Service charges for water, sewer, or trash collection. Other restrictions and limits may apply; details here
Losses from casualties, disaster and theft	Disaster losses must be from a federally-declared disaster; Many qualifications and restrictions apply, details here
Medical and Dental expenses	Only for amounts over 7.5% of adjusted gross income. More information here
Miscellaneous deductible expenses	Refer to IRS publication 529
Investment in designated Opportunity Zones or Opportunity Funds	Although there is a limited time window, many tax benefits are available, including: Temporary deferral of taxes on previously earned capital gains. Permanent exclusion of taxable income on new gains for Opportunity Fund investments held for at least 10 years. Reference here

Important Disclaimer

The above tables are a summary and reference guide for deductible expenses, updated as of June 2024. Many of these deductions have hidden complexities, limitations, and restrictions that may not be immediately obvious; many of them also treat international taxpayers differently than US Citizens or Resident Aliens.

For complete details about all of the deductions above (both itemized and universal), and more information on tax credits, always refer to official IRS guidelines: IRS list of credits and deductions.

To ensure you are correctly calculating and reporting these expenses, we recommend consulting a tax professional to optimize your return – especially if you plan to itemize, are living overseas, have a complex asset composition or high net worth, or all of the above.