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My wife made nearly 100k this year and we have no deductions to speak of. I made nearly nothing because interest rates on my investments are in the toilet. She claims 0 dependents. I offered to cover some of her tax liability, but if she is claiming 0 dependents shouldn't her payroll deductions pretty much cover her tax liability over the year? If we filled separately would that lower our tax liability overall (maybe by a thousand, or so) or are we better off filing jointly? Thanks in advance for any assistance rendered.
If you don't have any deductions to speak of (assuming you will take the standard deduction) why don't you run the numbers both ways to find out? It doesn't seem like it would take very long to do this. Your deductions for investment expenses are based on your income - the lower the income, the more of these you can claim. But since you say you barely made any money I'm not sure it would matter for you. Filing separately may eliminate some of the deductions you would be entitled to if you filed jointly.
Filing separately may eliminate some of the deductions you would be entitled to if you filed jointly.
I had totally forgotten about that. Thanks for pointing that out.
My main thought was reading somewhere about a marriage penalty---that sometimes it's more detrimental to file jointly because of something called the "marriage penalty" than it is filing separately.
If you made next to nothing and your wife had an income of $100k it would be completely stupid to file separately. Its not about the deductions, its about the tax brackets. Assuming you have absolutely no special deductions you'll pay around $7,000 more if you file separately.
Generally speaking, if there is a big difference in income between the husband and wife it makes much more sense to file jointly. If the incomes are somewhat similar, it depends on the details.
I had totally forgotten about that. Thanks for pointing that out.
My main thought was reading somewhere about a marriage penalty---that sometimes it's more detrimental to file jointly because of something called the "marriage penalty" than it is filing separately.
You're almost always better off filing jointly, because of credits and deductions not permitted when you file separately. I believe the "marriage penalty" comes into effect when both people have a substantial portion of the total income.
From the IRS website: The new law also raised the standard deduction for married couples to $9,500 and extended their 15 percent tax rate to $56,800 of taxable income. Each figure is double the number for single taxpayers. The changes reduce the “marriage penalty†– the difference between the tax couples pay and the amount they would have paid as two single persons. (This was done in 2003, so ignore the figure, it's $11,400.)
Yep, marriage tax benefits are optimized for the single-income household. Those households where spouses make roughly equal amounts are least benefited by marriage for tax purposes. However with the recent law changes I can't come up with a scenario where there would actually be a penalty versus being single. Anybody care to suggest a hypothetical? I can see the married filing separately being disadvantageous because you lose the ability to itemize or standard deduct independent of each other and lose credits and ability to deduct student loan interest et al. But versus being single, I'm not sure it's very likely in the new code (the old code, yes).
The "marriage penalty" does not refer only to the amount of the standard deduction. It refers to the tax rate paid on the joint income. It worked like this: Wife makes 50 and husband makes 50, for a combined income of 100. Because of different tax brackets applied to that income, husband and wife filing jointly paid a higher tax rate on more of that income than if each of them filed as single. This was done to eliminate a tax advantage married people had, when someone with a high income who filed jointly with his or her spouse was able to reduce the tax liability, while a single person with the same income would pay much more. There is now a slight advantage to married filing jointly over two people filing as single. More info here: Marriage penalty - Wikipedia, the free encyclopedia
TBecause of different tax brackets applied to that income, husband and wife filing jointly paid a higher tax rate on more of that income than if each of them filed as single. This was done to eliminate a tax advantage married people had, when someone with a high income who filed jointly with his or her spouse was able to reduce the tax liability, while a single person with the same income would pay much more.
Yes, but things have changed so that now there is no such penalty for couples making around $150k or less.
Yep, marriage tax benefits are optimized for the single-income household. Those households where spouses make roughly equal amounts are least benefited by marriage for tax purposes. However with the recent law changes I can't come up with a scenario where there would actually be a penalty versus being single. Anybody care to suggest a hypothetical? I can see the married filing separately being disadvantageous because you lose the ability to itemize or standard deduct independent of each other and lose credits and ability to deduct student loan interest et al. But versus being single, I'm not sure it's very likely in the new code (the old code, yes).
Even when the so-called marriage penalty existed, there was an easy way around it. Have only one spouse work. The other non-working spouse wouldn't be bringing any income in, so they would be zero either way, but as a married couple, you would get to claim their exemption and deduction off the working spouse's income, thereby lowering the amount of taxable income.
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Thanks in advance for any assistance rendered.
