Bad Tax Idea, Good Tax Idea - the little tax book that can save you BIG money!!! A portion of all proceeds from book sales go to research for a cure for Rett Syndrome. Rett Syndrome affects one out of every 15,000 girls born. Boys born with the Rett gene usually die at birth.
Excerpt from the book Bad Tax Idea Good Tax Idea:
Bad Tax Idea: Getting married without checking on the tax ramifications. A lot of couples hear that "getting married is great for tax purposes". It can be but, if you do it wrong (and a lot of couples goof it up their first year) you both may end up owing money.
You are considered married for tax purposes on the last day of the year.
Here is an all-to-common scenario that happens:
John makes $72,000 as an Engineer and for filing single for 2007 with one exemption would have a tax liability (ballpark) of $13,424. This takes into account his standard deduction and status.
Suzy makes $30,000 as a Teacher and for filing single for 2007 with one exemption would have a tax liability (ballpark) of $3509. This takes into account his standard deduction and status.
If they decide to get married and have not started to take into account their tax liability they potentially can face:
Joint income: $102,000 and a ballpark estimate of their tax liability then is $15848 which is lower than $13424 + 3509 or $16,933.
But the problem is that both John and Suzy, anticipating that they would be married each changed their Form W-4 at work to indicate Married Filing Jointly and they each took two allowances. Let's say for this example that they only had $10,848 withheld. It turns out they did NOT have enough money deducted to pay for their taxes! They end up with sticker shock at tax season the following year and can't understand why they owe $5000.
Maybe they didn't change anything but their Human Resources Dept did not update their tax tables and they did not withhold enough taxes. It happens. In any event, the tax burden would be on our heroes, John and Suzy..
Good Tax Idea: When you start planning for your wedding (or if you are going to elope) and you work for somebody - go to your human resources department and change your W-4 only after you have sat down and crunched the numbers as to what your combined income will be. Once you know your tax bracket, and depending on what you want as a couple
-Do you both want a refund? Do you both want to owe just a little? Plan your deductions accordingly.
If you both are in doubt, keep your filing status as Single, with zero deductions for the first year or just one each. If it looks like you are going to owe more money you can have your Human Resources department withhold an extra amount of money each paycheck to cover the tax shortfall.
If you both work as independent contractors (that means you receive a 1099 form) and are filing quarterly taxes (for Fed and for state depending on what state you live in) make sure that you are socking away enough money to cover the quarterly payments.
A very general rule of thumb is that the person in the marriage who makes the most money should take the exemptions on his or her W-4. The other person should generally take a single filing status with zero or one allowances.
The form I suggest you reference from the IRS is: Publication 919: How do I Adjust My Tax Withholding? For your respective state I suggest you visit one of the sites listed at the end of the book or check with a web search engine.
**Here is a clip of me talking about the same information - apologies for the poor video quality and my rough performance!
This book is full of great tips for legally saving money and avoiding problems when filing U.S. Federal income taxes. Some of the suggestions have never appeared in print before. Kim Greenblatt, a tax professional shares his observations of both bad and good tax ideas that he has encountered in his preparation of U.S. tax returns for his clients. Taking advantage of at least one of his suggestions might save you hundreds of thousands of dollars in taxes or in aggrevation when filing your U.S. Federal income tax returns.
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Categories the book is in:
Business & Economics: Personal Finance - Taxation
Business & Economics: Personal Finance - Financial Planning