Taxes For Couples And Families
Should my spouse and I file our taxes separately or together?
The question always comes up, "I'm married. Should my wife and I file as a joint tax return, or should we file married filing separately?" Those are the only choices you have. If you're married, you're married. The tax law says if you got married on January 1st, or December 31st, you're married all year. You can elect to file married filing separately, it depends on the state that you live in. If you're in a community property state you're not going to find any difference between married tax filing separately, or filing tax jointly. If you're in a non-community property state you might find some differences. I've generally found that in most cases, filing a joint tax return is more beneficial than filing separately.
What is "The Marriage Penalty"?
One of the reasons that people start questioning, "Should we file jointly or should we file separately?" is they've heard about the "Marriage Penalty." The marriage penalty comes about if you have a husband and wife both earning some large income. What's large? I don't know. The answer's going to be different depending on the individual. But let's say we have a husband and wife both earning $75,000. They could fall into the marriage penalty, because the way the tax law is designed is it's a graduated tax rate. It goes from 0 to 10 percent, 15, 25, 28, 33, 35, on up to 39 percent. Well, bear in mind that you're filing a joint tax return. The first spouse, the husband, to use him first, he's got $75,000 worth of income. He's already eaten up the 10 percent, the 15 percent. He's in the 25 percent bracket. Now you have the wife's income on top of that. She's going to take up the rest of the 25 percent and move up into 28 and maybe even the 33 percent tax bracket. Well, if you take two individuals earning $60,000 apiece, they conceivably could pay more income taxes than if they were two single people filing separate tax returns. Problem being, if you're married, you're married. You can't file as a single individual anymore. The IRS did try to alleviate what they called the marriage penalty in regards that they had the standard deduction, which we'll talk about another time. But the standard deduction of $5,100 for a single person is doubled for a married couple. That was the IRS's way of trying to eliminate the marriage penalty. To know if you get caught with the marriage penalty or not, it means running the numbers and then sitting down with that tax professional and trying to see if there's some way we can get around it.
Who qualifies as a dependent?
When you look at the long form tax return, you'll see a box on there that talks about dependents. Who's a dependent? The simple dependent is your child. Stepchild, adopted child, it doesn't matter, but typically dependents are children under the age of 19. Between 19 and 23 if they're a full time student, they can still be your dependent, and that's basically it. You can claim your parents as dependents, but there's some special rules dealing with parents. There are special rules dealing with people who are living with you for whom you're providing over half their support. You need to get into that if you have people who are not just your children. Then it's time back to that tax professional to help you because the laws can get very complex as to who is a dependent when we get beyond the basic child.
In the case of divorce, who claims the children as dependents?
You dealing with a situation where you're divorced and you've children. The question is who gets to claim those children as dependents. Typically, it's the custodial parent who gets to claim the children. You look at it again, not to sound sexist, from the stand point husbands are paying child support, children are living with the wife. Normally it would be the wife because she is the custodial parent, gets to claim the children on her tax return. However, if the paperwork that the divorce decree says, "as long as the husband is paying the child's support he's entitle to claim the children on his tax return, even though they're living with the wife", then it may be the husband who is entitle to claim the children. If the decree is silent it going to fall to custodial parent regardless who is paying their support. Again, we are talking about divorce and we're talking about dependent children. It's starting to get into complex issues that you really need to sat down with a professional who can read through the document and advice you the best way to proceed.
What is a "head of household" and do I qualify?
When you look at the tax return, you're going to look at various choices of ways that you're filing. You're going to either be "single", "married, filing jointly", "married, filing separately", or "head of the household". A "head of the household" is basically is a single person with a child living at home. What's the advantage of filing as 'head of the household'? The tax rates for "head of household" are somewhere between the single person and the married couple. As "head of household" you receive a little bit of a tax break.
How do I handle taxes for a deceased person?
The question of how to handle the taxes of a deceased person is going to come up and it happens. Let's say you've been married, or you are married, you're filing joint tax returns and your spouse passes away this past year. How do you handle that? Well, let's say your spouse passes away in 2007. When you file your tax return for 2007, you were married for part of the year so you get to file a joint tax return with that deceased spouse for the first year. The next year, and subsequent years after that, you're back to being a single person. You may be considered a head of household if you have children living at home with you, but you no longer get the benefit of filing with your spouse.
