John Bullis: Is Congress suggesting divorce to save taxes?
November 6, 2012
There are several proposals about income tax rates in the future. Most of those proposals have a “threshold” of $200,000 for single taxpayers and $250,000 for joint returns.
The new, additional 3.8 percent Medicare Surtax starts Jan. 1, 2013, for taxpayers with adjusted gross income above those thresholds who have investment income.
What I don’t understand is why the joint return threshold is not twice what it is for a single person.
If a single person has a allowable Adjusted Gross Income of $200,000 before the 3.8 percent surtax may apply, why wouldn’t a couple filing a joint return have a threshold of $400,000? Instead, the couple starts paying this at only $250,000.
Is Congress suggesting a way for high-income taxpayers to save tax is that they get divorced and file as single persons?
You can see other “marriage penalties” in the income tax rates.
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If a single person has taxable income (after deductions and personal exemption) of $85,651 in 2012 (when the 28 percent rate starts), shouldn’t a married couple be entitled to $171,302 before the 28 percent tax rate begins?
But, Congress has set the 28 percent tax rate to begin for a married couple filing a joint return at $142,701.
Is that fair, or reasonable, or equitable? Or, does it indicate income tax savings if the couple were to get divorced and file separate, individual income tax returns?
Note that if the couple elected to stay married and just filed as married persons filing separate returns the 28 percent rate starts at taxable income of $71,351 for each of them.
Yes, in some situations, one member of the marriage earns more than the other one. That can happen, even in a community property state like Nevada. However, it is not unusual for both spouses to be employed.
We should not let the “tax tail wag the dog” or taxes become the deciding factor in all of our decisions. But why penalize a married couple?
Maybe it would be appropriate to ask the members of Congress to stop penalizing married couples?
Did you hear? “You’re only as young as the last time you changed your mind,” by Timothy Leary.
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.