After nearly thirty years of marriage, I would be the last person to suggest that
\ntax consequences are a reason for making a lifelong personal commitment. On
\nthe other hand, I am often the first to point out that marriage is not always a
\ntax neutral activity. Some people work on the expectation that a “married
\nfiling jointly” (or MFJ) tax filing will always result in a lower combined tax
\nliability and a marriage tax bonus (meaning taxes are reduced solely due to
\nfiling as MFJ). They are surprised when this joint filing actually creates a
\nmarriage tax penalty (meaning filing MFJ results in higher taxes).<\/p>\n
So when should we expect a penalty or bonus? The literature describes that ‘in
\ngeneral’ we see a tax bonus when two partners have disparate incomes and a
\ntax penalty when they have similar or equal income. Based on the literature I
\nexpected that income splitting (as occurs in a domestic partnership tax filing)
\ncould provide an additional tax bonus over MFJ since disparate incomes can
\nbe split evenly between partners.<\/p>\n
While exploring the new 2013 tax rules we examined some tax scenarios and
\nwant to share some highlights with you. We found that starting at a combined
\nAGI (Adjusted Gross Income\u2013the number at the very bottom of the 1040
\nform) of $230K filing as MFJ resulted in a tax bonus of about $2K IF the two
\npeople had disparate incomes ($200K and $30K respectively) but a penalty of
\n$2K for those with similar incomes ($115K each). Therefore at this level of
\nAGI couples with disparate incomes do slightly better under MFJ and those
\nwith similar AGI do slightly better filing as individuals.<\/p>\n
With a joint AGI of $330K the single disparate earners ($300K and $30K) Finally we looked at a couple with a $530K AGI who will pay $143K in taxes if Marriage does provide non-income tax related advantages for spouses and<\/em> Once you consider tax consequences of marriage, domestic partnership or Edi Alvarez, CFP\u00ae www.aikapa.com<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":" After nearly thirty years of marriage, I would be the last person to suggest that tax consequences are a reason for making a lifelong personal commitment. On the other hand, I am often the first to point out that marriage … Continue reading
\nreceive a marriage tax bonus of about $3K. If the same joint income was
\nearned evenly ($165K each) they would pay $4K more filing as MFJ than as
\ntwo individuals (a $4K tax marriage penalty). Looking at these scenarios, it
\nbecame clear that those with similar incomes would annually save thousands
\nof dollars if they filed as individuals rather than MFJ (Note: this is not the<\/em>
\nsame as married filing separately but rather unmarried individuals<\/em>). As a
\ncorollary, those in a domestic partnership may want to verify that they will not
\nhave a large tax increase if they marry and file as MFJ.<\/p>\n
\nthey file as two individuals with disparate incomes ($500K and $30K) and
\ntaxes will be about the same if they file under MFJ (there is about a $1K tax
\nbonus). We do see a large tax penalty if this income was earned evenly by two
\nindividual filers ($265K each) and they file MFJ. As two individuals the tax
\nburden would drop by at least $15K.<\/p>\n
\nthe family which are not discussed here.<\/em><\/p>\n
\nsingle tax filings any decision you make will work as long as you make plans to
\ncover the marriage tax penalty or find ways to spend the marriage bonus.
\nThe above analysis assumed that ‘itemized deductions’ were kept constant and
\nthat there was no AMT. These were modeled tax estimates \u2013 please consult<\/em>
\nyour tax preparers for the specific tax impact in your situation.<\/em><\/p>\n
\n<\/sup>BS, BEd, MS<\/p>\n