Going to the chapel and we're filing jointly...

We're talking about the tax implications of marriage.

In general it is best to file jointly, but we've heard over the years that there can be benefits to filing separately. So that's what we're trying to get to the bottom of. One might think that if you have some funky deductions you can come out ahead. The standard deduction is $6350, which filing jointly gives you $12,700 of deductions. However if one of you has more than the standard deduction, you could file separately and have more in total deductions, putting you slightly ahead. That would be cool however, that's just not how it works. In order to encourage filing jointly, if one spouse itemizes the has to as well and cannot take the standard deduction.


There are a few cases where you may have a benefit, but they are few and far between. If you have a large medical bill, there's apparently some benefit to filing separately, although we really couldn't fathom it. Also, if before getting married, one spouse runs up a sizable tax debt, it's possible that filing separately will keep the other spouse off the hook. And maybe there's some benefit to filing separately when one spouse has a business that the other spouse doesn't want to be attached to.

The one and the two of it is that if there's nothing really screwy about your finances (deductions especially), you probably will come out ahead if you file jointly. As always, it doesn't hurt to run the numbers in both scenarios. These people seem to know what they're talking about. These people, too. If you're going to file separately, don't do it by yourself.

Profit!

Considering the tax implications of making purchases

It's always exciting getting a new phone.

One of our members needs to purchase new phones for he and his wife. They have an interesting situation in that she is self-employed and they also have rental income. That means that there are things to consider, that is different portions of their income can be taxed differently.

If you are trying to maximize deductions, the self-employed person should be purchasing the more expensive phone for their business use,  while with the less expensive phone a portion of it should be allocated as a rental property expense. This, of course, only applies if you are actually using these things for their intended purposes--you should always shy away from shady business with your taxes, because it just isn't worth it. As always, it helps to run this by someone who actually knows what they're doing, like an accountant.

Next week, we're going to talk taxes some more, particularly how getting married impacts your taxes.

Profit!

Tax Time!

One of our members is getting too much back on his tax return, so he's looking at withholding the minimum amount. He has a complicated tax scheme, with children and a rental property in the mix. He definitely benefitted from going to an accountant for this one--somewhere in the neighborhood of 30 forms. Hey, apparently you can get  all sorts of interesting deductions like on the depreciation of your house. That said, his is probably a somewhat extreme case. Most of us are merely renting or own our homes without kids or any other properties. But it does potentially to look at ways of reducing your tax burden.

Another nifty thing you can do, is manage your contributions to IRAs to adjust your taxable income. Say, if things are close you can contribute enough to reduce your taxable income so that you fall into the next lower tax bracket. And then you can contribute to a Roth IRA if you have anything more you'd like to contribute. Depending on your employer, you may have the option of doing this through your payroll deductions as well. It would all be coming out of the same till, but it is nice when saving is convenient.

Ultimately, it can feel easier to just pay whatever and not worry about it, but if you can take the time to try and do things properly, it can benefit you in the both the short and long terms.

Profit!

I've been doing this for seven years, and all I got was...

Oh, here's a fun fact:

Based on our rough calculations (and assuming our dividend calculations are correct) since our first purchase in 2010, we've made a net profit of $2.57. We don't even have a lousy t-shirt to show for it.

Our recent buy brought us up in tech and a little more in financials. We are currently low in industrials and energy. See:

We're taking a look at our portfolio and deciding our next move. EWZ has been a drain on our portfolio, and we should have dumped it a while ago. We have our shared account under the name of one of our members. If we do sell EWZ, that means there will be some sort of tax implication to him. Since we've never unloaded any shares, there hasn't been anything paperwork-wise that we've had to account for. Obviously, there is a tax benefit to a loss. But, at least as we understand it now, unless he is itemizing there won't be any effect. Of course, eventually we will hopefully sell shares for a profit, which will have it's own effects. This is one of the funny quirks of being part of a small financial club, but the impacts are germane to any person investing. And it is always important to make sure that you get your forms right with IRS.

The issues with the taxes here is a matter of capital gains and capital losses. It only makes sense to sell EWZ if we can get something that will offset it. Right now, we're certain that it can't go much lower. There's no harm in letting it sit there. We could think of EWZ not as $100, but as -$400. Essentially, we're sitting on a capital loss, and we've sort of banked it. When we decide to sell something for a profit, we could get rid of that at the same time to mitigate the negative tax implications of making an actual profit (a capital gain).

Profit