2 singles save a lot more tax than married couple

[loveviolet]

I am not discouraging you to get a divorce... however if you and your boy/girlfriend both make high income, you might consider delaying the marriage certificate :-)

My boyfriend and I calculated this: if we report tax together, we lose about $10,000! We make about $100,000 each person, and the biggest thing is we each have rental property, the unfair tax law is the rental loss deductible is $25,000 per person and $25,000 per couple as well!

Even you don't have rental property, it's likely the couple will report more taxes because they end up in the higher tax bracket.

Of course, our situation might not represent all... always consult your tax advisor :-)

[ThriftoRama]

It is sad but true. In marriage, the second income is taxed heavily. The tax code is outdated. It's not 1950 anymore....

[MonkeyMama]

Actually, this is not so much true for the middle class.

I personally think it really sucks to be single, tax-wise. We would pay way more tax on one income, if we both filed single. The tax code is pretty weighted towards families as far as the middle class. The code favors having children, home ownership, and for now, marriage. A lot of the "marriage penalties" were removed with the Bush tax cuts. I am always shocked when I prepare tax returns for the single, childless people who rent. Ugh!!! They easily pay 5 times the income taxes I do, on the same income.

I see what you mean on the larger income though. At $200k+ you don't get the usual tax breaks. Though you might still get them on a single $100k income. So at that level, marriage is more penalizing.

[maat55]

I am not discouraging you to get a divorce... however if you and your boy/girlfriend both make high income, you might consider delaying the marriage certificate :-)

My boyfriend and I calculated this: if we report tax together, we lose about $10,000! We make about $100,000 each person, and the biggest thing is we each have rental property, the unfair tax law is the rental loss deductible is $25,000 per person and $25,000 per couple as well!

Even you don't have rental property, it's likely the couple will report more taxes because they end up in the higher tax bracket.

Of course, our situation might not represent all... always consult your tax advisor :-)

You high income earners are stealing from us low wage earners, so my liberal friends: Obama, hillary, Kennedy etc. are going to set things straight.

[loveviolet]

It seems like a high income, but I am really struggling for money!

I live in Bay Area, and the house price is soooo high. Even we earn $100,000 each, after tax, house payment, property tax, gas, baby stuff, we don't get much left. Otherwise why am I in this money saving forum at all? :-)

[MonkeyMama]

Ah, then the bigger problem is where you live. Tax code is completely skewed against you. Particularly AMT, since you pay high state taxes and face an extremely high cost of living, but get taxed as if you were upper class or something. (Bay Area and NYC are hit hard by AMT).

I personally moved elsewhere from the Bay so we could live twice as well on half as much. Our income tax bill is very low now, to boot.

[jIM_Ohio]

My understanding is the marriage penalty was removed from the tax code around 2001.

The marriage penalty was this:
15% tax bracket cap for singles was x
the 15% tax bracket cap for married couples was NOT 2X.

Meaning if both spouses made 30k (15% tax bracket), the combined income of 60k used to be in 25% tax bracket.

Now if you look at tax tables income limits are

single:
10% $8025
married:
10% $16050

single:
15% $32550
married
15% $65100

single
25% $78850
married
25% $131450

there is a "marriage penalty" in 25% tax bracket which implies if both spouses make more than $66k there is tax penalty for getting married. The combined income needs to be higher than $131450 for the penalty to go into effect.

I think single people have it tougher- I know a single woman clearing 80-90k from her job- she is in 28% tax bracket. If she marries it's probable she could get into 15% tax bracket with a 401k contribution and if her spouse did not work. That is a 13% savings in taxes alone.

[vsjhoc]

What happens if the married couple files separately? Is that worse than if they (a) filed jointly, or if (b) they didn't get married and filed as singles???

[sweeps]

Filing separately is usually -- but not always -- worse than filing jointly.

I'm sure MonkeyMama will correct me, but I think that's usually used by couples who are separated, or have some other need to keep their finances separate. For example, John McCain and his wife. (John McCain must make his tax return public. His wife doesn't want to, so they file separately.)

[loveviolet]

Filing separately does not help

Filing separately will not save you money on the combined basis, because the tax bracket does not change.

What happens if the married couple files separately? Is that worse than if they (a) filed jointly, or if (b) they didn't get married and filed as singles???

[MonkeyMama]

Agreed. Filing Separate is usually worse. There are some instances where filing separate with kids can give you a small advantage (get to keep child tax credit), but it depends. Pretty rare.

Ah, if only it were so simple...

In a community property state it isn't usual as simple as filing separate either. Technically all income in the marriage is to be split 50/50 on each return. (stuff pre-marriage and inheritances, etc., of course can be reported separately).

So MFS is relaly my worst nightmare when it comes to preparing complex tax returns in this state. Ugh.

[loveviolet]

Marriage penalty is only for double income

If that woman can find someone who does not have income, of course she is better off if she gets married. However, the normal situation is her spouse will also have income, and if they get married the combined tax will actually be higher than if they report separately.

I am currently filing as a head of household (with my daughter), and my boyfriend(really husband) is filing on his own. Again, we save about $10,000 a year. Of course, some people might think that $10,000 is not as important as the marriage certificate (or known as marriage insurance?)

.....
I think single people have it tougher- I know a single woman clearing 80-90k from her job- she is in 28% tax bracket. If she marries it's probable she could get into 15% tax bracket with a 401k contribution and if her spouse did not work. That is a 13% savings in taxes alone.

[vsjhoc]

If that woman can find someone who does not have income, of course she is better off if she gets married.

Sounds like he is the one who will be better off.

[LivingAlmostLarge]

Depends, when you have a disparity like my DH and I it's better to be married, he gets huge tax break. BUT I realize that I work for negative dollars but heck I have to.

[noppenbd]

If that woman can find someone who does not have income, of course she is better off if she gets married. However, the normal situation is her spouse will also have income, and if they get married the combined tax will actually be higher than if they report separately.

I am currently filing as a head of household (with my daughter), and my boyfriend(really husband) is filing on his own. Again, we save about $10,000 a year. Of course, some people might think that $10,000 is not as important as the marriage certificate (or known as marriage insurance?)

If you are each losing more than $25000 a year on a rental property, why not sell the property(s) rather than worry about the $10000 tax savings?