How to save on taxes? Try a divorce
If both partners make more than $400,000 a year, a married couple could end up paying more in taxes than two single wage earners would pay.
This post is by Jacqueline Leo of The Fiscal Times.
Click the Huffington Post’s “divorce channel” (yes, the site has one) and you’ll see a typical women’s magazine story about the 10 signs you’re headed for a divorce. You’ve heard it all before:
- Forget being on the same page, you're not even in the same book.
- You’ve outgrown her.
- He doesn’t fulfill your needs.
- You’re staying together because of the kids.
- Blah, blah, blah.
Of all the known reasons for getting a divorce, we bet you've never heard this one before. You both make too much money to stay together! Sounds ridiculous, right? But the new fiscal cliff tax law that saved 99% of the country from massive tax hikes made a beeline for love-struck yuppies.
Meet the new George and Martha: two investment bankers who fell in love over a bottle of Barolo while students at Wharton. They were made for each other and had the looks, the lifestyle and the resumes that Wall Street firms bid for.
As their earnings and bonuses increased, they bought a 2,000-square-foot apartment in the heart of New York’s Tribeca. This was a paint-by-numbers picture: designer clothes, Hamptons weekends, movie premieres and trips to exotic places. Before long they were each making about $400,000 a year. And, thanks to the Bush-era tax cuts, they were able to keep a lot of that money and live the high life.
That was before the tax deal that would save the country from recession and make George and Martha a bullet point on "signs you may be heading for divorce." The new law raises taxes on couples making more than $450,000 and individuals making more than $400,000. When their accountant told them they may have to limit their deductions because of their joint incomes as well, they asked her to run the numbers and come up with an alternative.
At their next meeting, she presented them with two options -- file as a married couple and pay the piper, or divorce and file as "single." As it turns out, George and Martha would save more than $27,000 a year if they divorced (you can see a chart here). And so they did. But they’re still together, in some ways closer than ever.
They started their own business geared to couples like them called MisMatch.com. They analyze people’s taxes based on marital status, types of investments, etc., and try to save people a bundle. George and Martha’s next step is to design new software to compete with the big tax programs for people at all levels of the tax code.
More from The Fiscal Times and MSN Money:
This rare happening has special meaning.
One involves a meaningless ritual in which we look to an insignificant creature of little intelligence for insight into the future.
The other involves a groundhog....
Better yet...cut her break lines she dies in a fiery crash and collect on the Insurance Policy.
You are so smart and they are so stupid
You don't have to be rich for there to be a marriage penalty. The old geezer tax break has a small marriage penalty of $300 per person in deductions.
Far worse is the marriage penalty on Social Security benefits.
yay lets all give a big congrats to the wealthy for doing what they do best....avoiding taxes, I would GLADLY pay the 27,000 a year if it ment having a 400k a year job. It would sure suck to have to give up the weekend vacations and sellte for monthly vacations instead. meanwhile I work hard all week only to find out in addition to my already small paycheck even more is coming out this year and we just found out in addition to our mandatory 2week layoff a year we are now going to be cut down from 40hours a week to 34.5 hours. Enjoy your "tax victory" greedy fools, in the mean time I will be here living tiny paycheck to paycheck.
- The 99%
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