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Talk Tax With Your Partner
Maybe you’ve already met the one for you and are either in or on your way to marital bliss. If so, congratulations on being so lucky-in-love! When you have decided to spend the rest of your life with someone, please find the time to have a discussion about finances—including taxes. You’ll be doing your love life a favor for years to come. And you’ll ultimately be doing yourself a favor knowing beforehand exactly what financial situation you are getting into. Here are five tax topics to discuss with your partner:1. Tax Debt. Have a candid discussion with your partner about whether they currently owe or will owe the IRS. Really, you and your partner should have a number of conversations concerning finances and debt, but just make sure that one is focused specifically on tax debt. This will also help you determine whether or not you will file jointly or separately. 2. Compliance. Has your partner filed all required tax returns? Failing to file a tax return can result in penalties and ultimately a hefty tax bill. It also is a good clue as to who should and shouldn’t be in charge of taxes moving forward. 3. Easy Money. Weddings can be expensive and the temptation to pull from a retirement account to assist with the cost can be difficult to resist. However, there are serious tax consequences for doing so. Another important question is whether or not your partner has already borrowed from a 401K or IRA account. They will likely have to pay taxes (or even a tax penalty) on this amount.4. Other federal obligations. The IRS has the authority to collect back child support, alimony and federal student loan obligations. The IRS has the ability to withhold all refunds due and apply the funds to the back obligation; so if your partner owes other federal obligations you may want to file separately. 5. Filing status. Jointly or separate. Again, this is an important talking point. Although, the most advantageous filing status for married individuals is married filing jointly, there are instances in which spouses should opt to file separately. See the chart below:
File Married Filing Jointly if: - All of your financial information is comingled and easy to access
- Neither spouse has a preexisting tax debt or other federal obligation
- You want to take advantage of every tax credit and deduction available
File Married Filing Separate if:- One or both spouses have pre-existing tax debt or other federal obligation
- Both partners earn equitable income
- One partner has significant itemized deductions that are subject to the AGI floors (e.g. medical expenses, casualty losses, miscellaneous itemized deductions
- One partner has a tendency to use questions tax-filing decisions
Blog Archive
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2010
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June
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