Wednesday, February 22, 2017

Married with Taxes

Nateil: “In this world nothing can be said to be certain, except death and taxes.” - Benjamin Franklin

It’s February, and it’s tax season. Both of our W2’s have come in and I usually do both of our taxes. In 2015 a coworker of mine put me on to TurboTax and I’ve been using it ever since. But according to the tax law, a lot has changed since 2015. We got married!! Marriage is awesome and everyday I wake up and realize that I’ve made the best decision of my life! However, marriage brings tax implications, considerations and frustrations that I wasn’t even aware of! And I’m still clueless! 

Collectively, we made approximately $75,000 for 2016. We live in Georgia so you might think that’s a decent annual income but it doesn’t FEEL like it. There’s not a lot of COMFORT in that. We were both transitioning between jobs so we spent part of 2016 looking for work, but ultimately we still lived paycheck to paycheck. That’s no longer acceptable. However, in the eyes of law, since we’re married we are supposed to handle to living off of $75,000 a year. If one spouse doesn’t work, the working spouse can claim the non-working spouse and vice-versa. But what if both spouses work? What if there are kids involved? How does that change the funds coming into the house? Here is where the confusion begins! 

 In simple terms, a single person pays more in taxes than a married one. According to the 2016 tax rates, a single person making between $9,275 - $37,650 would be taxed at 15%. If their income was between $37,650 - $91,150 they would be taxed at 25%. First of all, I don’t even understand how they arrive at these percentages or how they calculate the income levels but it’s crazy that someone making $37,000 is taxed the same as someone making $90,000! Those are two COMPLETELY different lifestyles! But, the IRS doesn’t care and the rates go on and on. When you take a look at the tax rates, it’s obvious that in some situations it would make more sense to file as a joint married couple and others that indicate it’s better to file single. That’s the frustrating part. 

In a general sense, it seems to make sense to file jointly when we both have smaller incomes. When we both become high-income earners, then it would make sense to file separately! If one spouse has a significant amount of debt, then it also makes sense to file separately, but joint returns typically receive more of a refund. If we file jointly, then we can include education credits, child-care credits, and other things, but if we file separately then we cannot include those items! Lol! It’s a headache! Stuff like this can put a strain on a marriage but thankfully we don’t have those kinds of problems! Haha!

2016 Tax Brackets
Tax Rate
Single Filers
Married Joint Filers
10%
$0 - 9,275
$0 - 18,550
15%
$9,275 - 37,650
$18,550 - 75,300
25%
$37,650 - 91,150
$75,300 - 151,900
28%
$91,150 - 190,150
$151,900 - 231,450
33%
$190,150 - 413,350
$231,450 - 413,350
35%
$413,350 - 415,050
$413,350 - 466,950
39.6%
$415,050+
$466,950+

  In any case, filing taxes for this year has been an eye-opening experience for me. I’d like to learn more about how self-employed people or contractors file their taxes because I’m looking to supplement my salary with some contract work and I don’t want any red flags! This process definitely opens the door to communication with your spouse and is a necessary conversation to have if you’ve never talked about money with your spouse. I think it’s a great way to learn more about each other and it’s DEFINITELY a great indicator of the level of trust in your relationship. Everyone isn’t honest about their finances but strangely enough the “financial talk” can bring you both closer together! I’ve set a personal goal to make $100,000 as a single income. I plan to earn that income by 2020 so let’s get it!