29 Biggest Tax Problems For Married Couples

Preparing your annual income tax return is a chore. It’s even more complex when you’re married. You might have two sets of income, assets, debts and deductions. Further, if you were separated, widowed or divorced during the year, you might have a thorny tax situation.

A qualified accountant can advise you on the basic tax problems that married couples face. For a brief introduction, read through to see 29 of the most significant tax problems married people might encounter. Understanding these challenges can help you get more tax breaks this year.

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1. YOU’RE NOT SURE OF THE YOUR MARITAL STATUS FOR THE TAX YEAR

When preparing taxes, you first need to determine your marital status. It might seem like a straightforward task. However, life is not always so simple.

The IRS considers you to be married if you were lawfully wed on the last day of the tax year. For example, if you tied the knot at any time in the past and were still married on Dec. 31, 2016, you were married to your spouse for the entire year in the eyes of the IRS. The laws of the state where you live determine whether you were married or legally separated for the tax year.

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2. YOU’RE NOT SURE OF YOUR MARITAL STATUS IN A SAME-SEX RELATIONSHIP

Married, same-sex couples are treated the same as married, heterosexual couples for federal tax purposes. However, same-sex couples in a registered domestic partnership or civil union cannot choose to file as married couples, as state law doesn’t consider those types of couples to be married.

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3. YOU DON’T KNOW WHICH FILING STATUS TO CHOOSE

If you weren’t married on Dec. 31 of the tax year, the IRS considers you to be single, head of household or a qualified widow(er) for that year.

If you were married, there are three filing possibilities:

  • Married filing jointly
  • Married filing separately
  • Head of household

If more than one category might apply to you, the IRS permits you to pick the one that lets you pay the least amount in taxes.

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4. YOU CAN’T DECIDE WHETHER TO FILE JOINTLY OR SEPARATELY

If you’re married and don’t qualify to file as head of household, you typically have two choices: filing jointly or separately. It’s best to choose the one that allows you to pay the least amount in taxes, which all comes down to your particular circumstances.

Sometimes it makes sense to file separately, said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “A joint return means that your finances are linked, so you’re both liable for each other’s debts, penalties and liabilities,” he said. “So if either of you has some financial issues or baggage, then filing separately will better protect your spouse from your bad record, or vice versa.”

If you file jointly, you can’t later uncouple yourselves to file married filing separately. “On the other hand, if you file separate returns and then realize you should have filed jointly, you can amend your returns to file jointly, within three years,” Zimmelman said.

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5. YOU ASSUME MARRIED FILING JOINTLY IS ALWAYS THE BEST OPTION

Even if married filing jointly has been your best choice in the past, don’t assume it will always be that way. Do the calculations each year to determine whether filing singly or jointly will give you the best tax result.

Changes in your personal circumstances or new tax laws might make a new filing status more desirable. What was once a marriage tax break might turn into a reason to file separately, or vice versa.

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6. YOU’RE NOT CLEAR ABOUT HEALTHCARE REQUIREMENTS

The Patient Protection and Affordable Care Act — more commonly known as “Obamacare” — requires that you and your dependents have qualifying health care coverage throughout the year, unless you qualify for an exemption or make a shared responsibility payment.

Even if you lose your health insurance coverage because of divorce, you still need continued coverage for you and your dependents during the entire tax year.

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7. YOU CHANGED YOUR LAST NAME

If you want to change your last name after a marriage or divorce, you must officially inform the federal government. Your first stop is the Social Security Administration. Your name on your tax return must match your name in the SSA records. Otherwise, your tax refund might be delayed due to the mismatched records. Also, don’t forget to update the changed names of any dependents.

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8. YOUR SPOUSE DIED DURING THE TAX YEAR

If your spouse died during the year, you’ll need to figure out your filing status. If you didn’t marry someone else the same year, you may file with your deceased spouse as married filing jointly.

If you did remarry during that tax year, you and your new spouse may file jointly. However, in that case, you and your deceased spouse must file separately for the last tax year of the spouse’s life.

In addition, if you didn’t remarry during the tax year of your spouse’s death, you might be able to file as qualifying widow(er) with dependent child for the following two years if you meet certain conditions. This entitles you to use joint return tax rates and the highest standard deduction amount.

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9. YOU FILE JOINTLY AND YOU’RE BOTH LIABLE

If you use the status married filing jointly, each spouse is jointly and severally liable for all the tax on your combined income, said Gail Rosen, a Martinsville, N.J.-based certified public accountant. “This means that the IRS can come after either one of you to collect the full amount of the tax,” she said.

“If you are worried about your spouse and being responsible for their share of their taxes — including interest and penalties — then you might consider filing separately,’ she said.

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10. YOU FILE SEPARATELY AND LOSE TAX BENEFITS

Although filing separately might protect you from joint and several liabilities for your spouse’s mistakes, it does have some disadvantages.

For example, people who choose the married filing separately status might lose their ability to deduct student loan interest entirely. In addition, they’re not eligible to claim the Earned Income Tax Credit and they might also lose the ability to claim the Child and Dependent Care Credit or Adoption Tax Credit, said Eric Nisall, an accountant and founder of AccountLancer, which provides accounting services to freelancers.

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11. YOU DON’T MEET THE MEDICAL EXPENSE DEDUCTION THRESHOLD

To include non-reimbursed medical and dental expenses in itemized deductions, the expenses must meet a threshold of exceeding 10 percent of your adjusted gross income. However, when you file jointly — and thus report a larger combined income — it can make it more difficult for you to qualify.

A temporary exception to the 10 percent threshold for filers ages 65 or older ran through Dec. 31, 2016. Under this rule, individuals only need to exceed a lower 7.5 percent threshold before they are eligible for the deduction. The exception applies to married couples even if only one person in the marriage is 65 or older.

Starting Jan. 1, 2017, all filers must meet the 10 percent threshold for itemizing medical deductions, regardless of age.

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12. YOU DON’T TAKE ADVANTAGE OF THE MARRIAGE BONUS

Many people complain about the marriage tax penalty. “Married filing jointly may result in a higher tax bill for the couple versus when each spouse was filing single, especially if both spouses make roughly the same amount of income,” said Andrew Oswalt, a certified public accountant and tax analyst for TaxAct, a tax-preparation software company.

However, you might have an opportunity to pay less total tax — a marriage tax break — if one spouse earns significantly less. “When couples file jointly with largely differing income levels, this may result in a ‘marriage tax benefit,’ potentially resulting in less tax owed than when the spouses filed with a single filing status,” Oswalt said.

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13. YOU’RE DIVORCED BUT STILL NEED TO FILE A FINAL MARRIED RETURN

If your divorce became official during the tax year, you need to agree with your ex-spouse on your filing status for the prior year when you were still married. As to whether you should file your final return jointly or separately, there is no single correct answer. It partially depends on your relationship with your ex-spouse and whether you can agree on such potentially major financial decisions.

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14. YOU HAVE TO DETERMINE THE STATUS OF DEPENDENTS AFTER A DIVORCE

Tax laws about who qualifies as a dependent are quite complex. Divorcing parents might need to determine which parent gets to claim the exemption for dependent children.

Normally, the custodial parent takes the deduction, Zimmelman said. “So if your child lives with you more than half the year and you’re paying at least 50 percent of their support, then you should claim them as your dependent,” he said.

In cases of shared custody and support, you have a few options. “You might consider alternating every other year who gets to claim them,” said Zimmelman. Or if you have two children, each parent can decide to claim one child, he said.

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15. YOU DEDUCT VOLUNTARY ALIMONY PAYMENTS

If you want to deduct alimony payments you made to a former spouse, it must be in accordance with a legal divorce or separation decree. You can’t deduct payments you made on a voluntary basis.

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16. YOU DEDUCT CHILD SUPPORT PAYMENTS

Even if you don’t take the standard deduction and instead itemize your deductions, you can’t claim child support payments you paid to a custodial parent.

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17. YOU CLAIM CHILD SUPPORT PAYMENTS AS INCOME

Do not report court-ordered child support payments as part of your taxable income. You don’t need to report it anywhere on your tax return. On the other hand, you must report alimony you receive as income on line 11 of your Form 1040.

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18. YOU DON’T CLAIM ALIMONY YOU PAID AS A DEDUCTION

Unlike child support that isn’t tax deductible, you are permitted to deduct court-ordered alimony you paid to a former spouse. It’s a deduction you can take even if you don’t itemize your deductions.

Make sure you include your ex-spouse’s Social Security number or individual taxpayer identification number on line 31b of your own Form 1040. Otherwise, you might have to pay a $50 penalty and your deduction might be disallowed.

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19. YOUR SPOUSE DOESN’T WORK AND MISSES TAX SAVINGS

Saving for retirement is important. Contribute to a 401k plan and you will both save money for your golden years and lower your taxable income now. If your employer offers a 401k plan, you can contribute money on a pretax basis, subject to certain limits.

However, nonworking spouses can’t contribute to a 401k because they don’t have wages from an employer.

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20. YOU MISS QUARTERLY TAX PAYMENTS

Single or married, you might have to pay quarterly tax payments to the IRS, especially if you are self-employed. Make sure you know how to calculate estimated taxes. If you are required to make such payments but do not do so, you might have to pay an underpayment penalty, Rosen said.

All taxpayers must pay in taxes during the year equal to the lower of 90 percent of the tax owed for the current year, or 100 percent — 110 percent for higher-income taxpayers — of the tax shown on your tax return for the prior year, Rosen said. “The problem for married couples is that often they do not realize they owe more taxes due to the combining of the two incomes,” she said.

You should be proactive each year. “To avoid owing the underpayment penalty, make sure to do a projection of your potential tax for 2017 when you finish preparing your 2016 taxes,” she said, adding that you should make sure to comply with the payment rules outlined above.

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21. YOU PHASE OUT OF PASSIVE LOSSES

Crystal Stranger — a Los Angeles-based enrolled agent, president of 1st Tax and author of “The Small Business Tax Guide” — said she sees a lot of married couples who have issues with passive loss limitation rules.

“With these rules, if you have a passive loss from rental real estate or other investments, you are allowed to take up to $25,000 of passive losses against your other income,” she said. “But this amount phases out starting at $100,000 (of) adjusted gross income, and is fully lost by $150,000 (of) adjusted gross income.”

Married filers lose out, as the phaseout amount is the same for a single taxpayer as for a married couple. “This is a big marriage penalty existing in the tax code,” Stranger said. “It gets even worse if a married couple files separately. The phaseout then starts at $12,500, meaning almost no (married filing separately) filers will qualify.”

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22. YOU CLAIM A CHILD AS A DEPENDENT, BUT YOUR INCOME IS HIGH

You are not obligated to claim your kids as dependents on your own tax return. In fact, it might be beneficial not to claim them.

“High earners lose the personal exemption after crossing certain income thresholds,” said Nisall. So in some cases, it might make more sense to let working children claim the exemption for themselves on their own return, he said.

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23. YOU MISS OUT ON THE CHILD TAX CREDIT

Married couples might be able to claim the Child Tax Credit up to a limit of $1,000 for each qualifying child.

“The Child Tax Credit phases out starting at $55,000 for couples electing to use the married filing separately filing status, and (at) $110,000 for those choosing the married filing jointly status,” said Oswalt. “But married couples receive twice the standard deduction that individuals receive, so the phaseout limitations may not negatively impact a married couple’s return if they choose to file jointly.”

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24. YOU NEGLECT THE TAX BREAK FROM A HOME SALE

The IRS provides a tax break when you sell your home, subject to certain conditions. Generally, you must meet a minimum residency period by owning and living in the house for two of the five years previous to the sale.

A single person who owns a home that has increased in value can qualify to exclude up to $250,000 in gains from income, said Oswalt. However, married people can exclude up to $500,000 in gains. This rule can become tricky if one person in the couple purchased the house prior to marriage.

“If you are married when you sell the house, only one of you needs to meet the ownership test for the $250,000 exclusion,” Oswalt said. “You both must meet the residency period to exclude up to the full $500,000 of gain from your income, however.”

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25. YOU DON’T CLAIM THE CHILD AND DEPENDENT CARE CREDIT

Married tax filers might be eligible for the Child and Dependent Care Credit if they paid expenses for the care of a qualifying individual so that they could work or look for work. The rules for who can be a dependent and who can be a care provider are strict. This credit is not available if you file separately.

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26. YOU CAN’T DEDUCT STUDENT LOAN INTEREST

If you’re paying back student loans, you might be looking forward to taking the student loan interest deduction. However, if you’re married, it might not be so easy to do that.

“For a single filer, the deduction begins to phase out when the taxpayer’s adjusted gross income is greater than $65,000,” said Oswalt. “This amount is doubled to $130,000 when filing jointly.”

“So if both spouses are making $65,000 or less, then their deduction will not be affected by the phaseout,” he explained. “However, if one is making $60,000 and the other $75,000, the deduction begins to phase out, which will ultimately result in a larger tax bill.”

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27. YOU INCORRECTLY ACCOUNT FOR GAMBLING WINS AND LOSSES

Imagine a married couple where both spouses like to gamble in Las Vegas. He’s not so lucky and has losses, while she has winnings. If they file a joint return, they might have to report the gambling winnings as taxable income. Meanwhile, the losses might be deductible if the couple itemizes their deductions instead of taking the standard deduction.

However, they can’t take the amount of gambling winnings, subtract the losses and claim the net amount as winnings. Instead, they must report the entire amount of gambling winnings as income, whereas the losses are reported as an itemized deduction up to the amount of the winnings. The IRS requires you to keep accurate records of your winnings and losses.

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28. YOU BECAME A VICTIM OF TAX IDENTITY THEFT

Identify theft is a financial nightmare, no matter how it happens. Tax identity theft happens when someone files a tax return using one or both of the spouse’s Social Security numbers in hopes of scooping up your legitimate refund. If this happens to you, “contact the IRS immediately and fill out an identity-theft affidavit,” said Zimmelman. “You should also file a complaint with the Federal Trade Commission, contact your banks and credit card companies, and put a fraud alert on your and your spouse’s credit reports.”

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29. YOU CAN’T GET YOUR 2015 RETURN

The IRS and state tax agencies work to develop safeguards to avoid identity theft related to tax returns. In 2017, they will be particularly concerned about the implications of taxpayers who file using tax software.

The IRS has alerted taxpayers that they might need to have their 2015 adjusted gross income handy if they are changing software products this year. This number might be required to submit your return electronically.

Getting your 2015 adjusted gross income might be difficult if you are a member of a divorced couple that is not on positive terms, or that hasn’t even been in contact the past few years.

However, you still have options. You might be able to get the information if you go to the IRS website and use the Get Transcript service.

 

 

Written By: Valerie Rind
Source: GOBankingRates

Want a Back Rub? Tech Doles Out Perks for Talent

Provided by CNBC

Pity Silicon Valley job recruits.

In the battle for top talent in the technology sector, the allure of perks such as free massages and unlimited vacation has lost some of its luster, by some accounts.

Job sweeteners have become almost a necessity, even in an uncertain economy, as top talent is no longer seeing the value of switching jobs.

“They’ve seen too many of their friends take jobs at companies that fail, or sign on with entrepreneurs who don’t know how to manage,” Ryan Armbrust, managing director at ff Venture Capital, told CNBC recently. That means job seekers are looking for benefits that are both quantitative and qualitative, he said.

“When options don’t seem to have present value and every company looks the same at face value, companies are forced to resort to incentives, like offering SoulCycle classes and Warby Parker sunglasses,” Ambrust added.

According to Silicon Valley watchers, the list of possible perks are virtually endless. Future tech pioneers can expect activities like ping pong, personal trainers, afternoon meditation sessions, group fitness, and beverages on tap. For veterans, trips to Puerto Rico are no foreign concept, and some of the more adventurous firms let employees bring their pets to work — or even let you sleep on the job.

Still, some argue that on-the-job bonuses don’t necessarily move the pendulum for many workers.

“The perks typically play a marginal influence on the decision making process because most companies are offering the same benefits,” said David Saad, co-founder of SpringSprout, a New York-based recruiting firm. “The main factors that engineers consider now include depth of technical challenge, caliber of the team, personal interest in product, compensation, and more recently, if the company offers a social good element.”

Firms are also more open to accepting engineers from “bootcamp” programs, instead of candidates with years of industry experience. “The cost of lost productivity from not having enough engineers heavily outweighs the cost of any barriers to getting engineers on-board,” Saad said.

According to the firm, more influential factors are a company’s willingness to relocate potential recruits, or sponsor them for foreign visas. According to data from SingleSprout, they’ve seen a 30 percent increase in relocation offers to bring people to New York City.

Back rubs, out-of-town trips and other things “are nice to haves, but they are not swaying people anymore,” Natan Fisher, SpringSprout’s other co-founder added.

Yet in the war for talent, tech companies like Google  (GOOGL), Apple  (AAPL)and Facebook  (FB), have a separate battle to wage. Silicon Valley giants have repeatedly come under fire for the anemic ranks of women and people of color among their work force. In 2015, female engineers made up an average of just 7 percent of tech teams they’ve worked with, a small increase from 5 percent in the previous year.

SingleSprout’s founders told CNBC they are more frequently asked to dedicate more resources for targeting programs and companies that employ minority engineers, as the tech industry scrambles to improve its diversity.

Armbrust, of ff Venture Capital, noted more coding schools are attracting more and more women, who will now be entering the work force.

While he expects to see this growth continue, he cautioned it will take time.

“Educators are doing a better and better job supporting women within these fields, but we will need continued focus here in the future to create a balanced workforce,” Armbrust said.

Written by Uptin Saiidi of CNBC

(Source: MSN)

What Does the Future Hold for Social Security?

© Nick M. Do/Getty Images
© Nick M. Do/Getty Images

Too many Americans, particularly in the younger generation, believe Social Security benefits will be nonexistent by the time they reach retirement age. While it’s true that the money in the Social Security trust funds is being depleted, the chances that benefits will be eliminated altogether are slim to none. Here’s what Americans need to know about the current state of Social Security, what would need to happen to keep benefits as they currently stand, and what the worst-case scenario looks like.

The reserves are running out

Social Security taxes are deposited into trust funds, which theoretically earn enough interest to pay out benefits — and right now, they do.

However, the Social Security and Medicare Trustees’ 2014 report projects that reserves will build until 2019, after which the benefits being paid out will exceed the amount of money flowing in. This deficit will drain the trust funds, and all reserves are forecast to run out by 2033 unless Congress makes changes to the program.

What can be done to fix this?

Several actions could be taken to maintain Social Security benefits past 2033. And Congress has some time to decide, as reserves will build up for another four years.

1. Increase Social Security taxes: Currently, employees pay Social Security taxes at a 6.2% rate, and employers contribute a matching amount. One potential fix would be to gradually increase the rate to 7.2% over 20 years. It is estimated that this would make up for 52% of the projected shortfall. This solution is supported by 83% of Americans, according to a survey by the National Academy of Social Insurance and Greenwald and Associates.

2. Eliminate (or increase) the wage cap: As of the 2015 tax year, only the first $118,500 of Americans’ wages are subject to Social Security taxes. Increasing the wage cap to about $230,000 — which would represent 90% of all earned wages — would reduce the shortfall by 29%. Eliminating the cap altogether would take care of 74% of the shortfall, although this idea is less popular than simply increasing the cap.

3. Raise the normal retirement age: Gradually raising Social Security’s full retirement age to 68, or even 70, would go a long way toward fixing the problem. However, this is a rather unpopular option: 65% of the population opposes an increase to 68, and even more Americans oppose an even higher retirement age.

4. Lower benefits: Across-the-board cuts are extremely unpopular, but cutting benefits for higher earners is a possibility. Because the system is weighted toward lower-income earners already, it could be possible to reduce benefits on a sliding scale to middle- and high-income workers. There are an infinite number of ways to do this, so it’s tough to say how much of the deficit this could offset.

5. Adjust how cost-of-living increases are calculated: Currently, the Consumer Price Index, or CPI, is used to determine annual cost-of-living increases in Social Security benefits. However, switching to an index called “chained CPI,” which economists say provides a more accurate picture of inflation, would reduce annual increases by about 0.3%. This politically popular idea would eliminate 25% of the shortfall.

6. Base the formula on more working years: Finally, because Social Security is calculated based on the 35 highest-earning years of a worker’s career, that number could be increased to, say, 38 years in order to reduce the calculated average. This could take care of 13% of the shortfall, but it would effectively represent an across-the-board benefit cut and would therefore be unlikely to gain traction in Congress.

The most likely outcome

I’m almost certain Congress will do something to make Social Security solvent, at least on a temporary basis. In the past, lawmakers have acted when necessary in order to keep the program above water, and there’s no reason to believe things will be any different this time. After all, the last significant Social Security changes (made in 1983) are the reason the trust funds are expected to last until 2033 in the first place.

However, some options are highly unlikely. For example, cutting benefits across the board and raising the full retirement age are both particularly unpopular choices among Americans, so they’re unlikely to get serious political support.

On the other hand, Americans of all income levels and political affiliations support gradually increasing taxes, raising or eliminating the wage cap, and changing the cost-of-living calculation method. So my best guess is that we’ll see one of those, or some combination of them.

What if Congress does nothing?

Of course, there’s always a chance that Congress will do nothing (hey, it’s happened before), but that doesn’t mean benefits would disappear completely, despite the fact that 41% of Americans mistakenly believe they would. It simply means that because the trust funds will be depleted by 2033, the only funding source for benefits after that point would be money flowing in from taxes.

If this unlikely scenario were to play out, the Social Security and Medicare Trustees 2014 report found that benefits could be sustained at 77% of the current level until 2088, at which point they would only drop to 72%.

Again, I find this scenario unlikely, but it’s good to know Social Security benefits will be largely sustained no matter what.

Hope for the best, but plan for the worst

The point here is to recognize the current state of Social Security and what the future could look like.

Written by Matthew Frankel of The Motley Fool

(Source: The Motley Fool)