Unlucky 7: The Top Taxpayer Mistakes, Part 4

Here's part 4 of a piece from Money Central that details the top taxpayer mistakes:

Getting married

I’m not saying don’t get married. What I am suggesting is that you postpone a Christmas wedding until after the first of the year. The tax savings could pay for a sizeable chunk of the honeymoon.

The 2003 tax law attacked some problems of married couples and their taxes. Still, there remains a marriage penalty if both married partners work. For example, in 2005, two individuals who each earn $70,000 in taxable income should pay $14,165 each in taxes for a total outlay of $28,330, according to the 2005 IRS tax tables. As a married couple, their taxable income would be $140,00. They would have to file either a joint return or a return as married filing separately. As a couple, they would be required to pay $28,931.50 in taxes -- $601.50 more than what they would have paid had they remained single. This is because we have a progressive tax system where incremental dollars are taxed at higher marginal rates. The second $70,000 therefore would be taxed at a higher marginal rate than the first $70,000.

This tax penalty on marriage is no longer compounded by the standard deduction, thanks to the 2003 tax law. A married couple is allowed $10,000 in nontaxable income in 2005. Two single workers get $5,000 each for a total of $10,000..

However, high-income earners who marry will lose write-offs for personal exemptions faster than their single counterparts. Marriage may also wipe out potential IRA deductions. Of course, if only one partner is employed, marriage would provide a tax savings. They could file jointly, at rates lower than for single taxpayers.

Anyone planning to get married in late December should run the math and consider waiting until the first of January.

Click here to read part 5 of this series.

Free Money Finance recommends Emigrant Direct. Its 4.0% yield makes it a great place to store your emergency funds or other cash.

Comments

[Chrees]

Getting married calls into account many factors. The major one that factored into our wedding date was choosing after my wife-to-be filed her financial statement for student loans related to her final year in grad school. Once we got married she would no longer qualify for certain loans, so we got married the month after everything had to be filed.

While she earned almost no income at the time and we would have benefited from getting married earlier from the tax aspect, we would have lost some long-term benefits from her student loans (subsidized vs. non-subsidized).