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Financial Planning / Tax Strategies


Subject:  Re: Uncooperative, Signature Date:  3/29/2013  6:29 PM
Author:  ptheland Number:  118204 of 127616

Since they're not yet divorced (and likely won't be before Oct.) it only affects whether that 8K will have gone to the IRS or be part of the assets to be divided in the divorce.

Nope. That's separate property thinking.

In separate property states, his income is his and her income is hers. So if he is the sole earner, all of the income goes on his return and none on hers. So her standard deduction and personal exemption are wasted. In addition, the tax brackets are roughly 1/2 of those for married filing joint.

In a community property state, MFS returns typically split all of the income and deductions in half. (The exception would be income from any property that remains separate property. Notably, that does NOT include wages).

So there, her standard deduction and personal exemption are not wasted. And with 1/2 of the income on two returns taxed with brackets that are 1/2 of the size of joint filing brackets, you end up with taxes that are roughly the same total on the two separate returns as they would be on a single joint return.

And directly to your comment - with 1/2 of the tax and 1/2 of the withholding on each return, whatever balance is due would become 1/2 her problem. He could meet his tax obligation by filing a return and paying whatever he separately owed. The balance of the tax obligation would be hers and her problem.

With no income and no assets, that could become a significant problem for her. The IRS will generally not look to his income and assets to pay her taxes when they file separate returns.

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