Bassim Michael

What Is the Marriage Penalty?

If you are recently married, you’ll have to contend with a few more issues besides your spouse’s snoring! You’ll also have to deal with new tax choices, including decisions concerning how to file your taxes and whether you will file “married filing jointly” or “married filing separately”.

Combining two spousal income often equates to a higher household taxable income, than it obviously would have if you remained single. In a number of cases, this means more taxes you’ll have to pay, in part, due to the “marriage penalty tax”.

The marriage penalty is caused by our progressive tax structure, which puts the taxpayer in a higher tax bracket as their earnings increase.

Whenever both working spouses have to pay a higher combined, or “joint” tax rate on the identical income than they would be paying had they each been single, that’s generally when the marriage penalty kicks in.

Filing as married filing separately will also vary depending on whether you live in a community or separate property state.

The good news is that not all married couples have to deal with the marriage penalty. In some cases, some married couples pay less taxes together than when they were both single.

If you have any questions about the marriage penalty, please contact Bassim Michael at bmichael@bmichaelcpa.com.

Key Tax Provisions of the “Fiscal Cliff”

The bill that congress passed and the president promised he will sign to avoid the dramatic rise in income tax rates AKA as the fiscal cliff will raise taxes on the nation’s highest earners while extending and making permanent most of the Bush era tax cuts. Here is a summary of key tax provisions:

  1. Tax rates for single individuals making $400,000 and married couples making $450,000 will be increased to 39.6% indexed for inflation.
  2. For those taxpayers in the 39.6% bracket, long-term capital gains and qualified dividend tax rates will rise from 15% to 20%.
  3. For all other taxpayers, the Bush tax cuts from 2001 and 2003 will be made permanent.
  4. Phaseouts for itemized deductions and personal exemptions will be reinstated for couples making over $300,000 and single taxpayers making $250,000.
  5. Fixes AMT patch for 2012 and adjusts the exemption amounts permanently.
  6. Code Section 179 asset expensing will be extended at $500,000 for 2013.
  7. Extends 50% bonus depreciation through 2013.
  8. Estate tax rates will rise to 40% but the exemption amount will remain at $5 million per spouse adjusted for inflation.
In addition to the above changes, the new legislation also extends through 2013 the following individual tax benefits: relief from cancellation of debt income for principal residences, deduction for mortgage insurance premiums as interest, election to deduct state and local sales taxes in lieu of income taxes, above the line deduction for qualified education expenses, tax-free distributions from IRA accounts for charitable purposes.

If you have questions about this topic, please feel free to contact us via email or phone, 559-436-8907.