To Have And To Hold The news isn't all that terrible for married taxpayers. Check out these tax breaks.

Much has been made in recent weeks about the "marriagepenalty" tax that stings married couples who file their taxestogether with a stiffer tax bill than unmarried couples who fileseparately.

While Congress continues to crank up efforts to eliminate, or atleast alleviate, the marriage penalty (both President Clinton andCongressional Republicans favor its elimination), there are someoverlooked tax benefits for spouses that you shouldn't ignore.Here are a few you may have overlooked:

• Personal exemptions. The write-off you get for yourself,your spouse and your dependents increased $50 this year to $2,750per person.

• Gift-splitting. The IRS lets you give $10,000 per yearper person to as many people as you like without worrying aboutgift taxes. If you gave away more than $10,000 to someone last yearand you're married, you can "gift split," or combineyour maximum gift with that of your spouse. So combined with aspouse, you're allowed to give $20,000 per year per personbefore the government wants a cut. If you're giving to anothercouple (married children, for example), that's $40,000annually. Normally, if you give away less than $10,000 to someonein a given year, you don't have to file the U.S. Gift TaxReturn. In the case of gift-splitting, though, you do have to fileIRS Form 709 or 709-A (the equivalent of a Gift Tax-EZ).

• Spousal IRA contributions. Nonworking spouses. In thepast, if a working spouse had a retirement plan at work and earnedtoo much, both spouses were denied the IRA deduction. No more.These days, a contribution to a spousal account can be fullydeducted as long as the family's income is less than$150,000.

• Self-employed health insurance. The deduction for healthinsurance premiums paid by entrepreneurs increased from 45 percentto 60 percent last year. The good news is the deduction will riseto 70 percent for 2002 and to 100 percent for 2003.

An added bonus to this tax relief: The IRS is making it eveneasier to deduct medical expenses if your spouse is an employee ofyour business. Some background: In March 1999, the IRS beganpermitting a self-employed taxpayer, such as a sole proprietor,partner or LLC member, to deduct 100 percent of the cost ofaccident and health coverage provided to a spouse who is employedin the taxpayer's trade or business. The cost is fullydeductible as a business expense. You'll want to check with atax adviser on the details.

The health-care coverage of the employee's spouse mayinclude insurance for the employer/ spouse and any dependents ofthe married couple. As a fringe benefit, the total cost of all thecoverage is excluded from the employee/spouse's income and isalso deductible by the employer.

According to a review in the August 1, 1999, edition of theNational Public Accountant, such spousal employment caseshinge on the factual analysis of the term "bona fide"employee. In the most general terms, a bona fide employee may workpart-time, but he or she must perform significant services thathave economic substance-simply referring to a spouse as an employeeis insufficient. Also, if the spouse is classified as an owner, heor she can't be an employee. The employer-employee relationshipshould be documented, i.e. hours worked, duties assigned,compensation paid, etc. Finally, the employee/spouse must betreated exactly the same as other employees in terms of medicalplan eligibility requirements, or any deduction would be disallowedas discriminatory in favor of the spouse.

Extra Resources

• For more information on tax breaks involving entrepreneurs andspouses, call a tax specialist for details or grab a copy of thefree handbook The IRS Tax Guide for Small Business by calling (800)TAX- FORM, or download it at www.irs.ustreas.gov.

• You can also find help through the SBA, or check outEntrepreneur magazine's Start-Up Guides. There are morethan 50 industry-specific books on small business, each containinga section on taxes for that business.

Brian O'Connell is a Framingham, Massachusetts-basedfreelance business writer. His most recent book, B2B.com(Bob Adams Media), is available this September. His earlierbooks, Generation E: How Young Entrepreneurs are Changing theCorporate Landscape (Entrepreneur Press) and The 401(k)Millionaire (Random House/Villard), are available in bookstores.A frequent contributor to many national business magazines, he canbe reached at Bwrite111@aol.com.