Filing Taxes as a Married Couple

Filing taxes can be an extremely difficult task. There are so many rules and regulations that it can make your head spin. Additionally, when you are married and considering how you should file, things can get even more complicated. Discovering if filing together or separately will yield the most benefits is a question which needs to be thoroughly researched. While there is no clean-cut answer and most people opt for filing together due to the tax breaks you can receive, there are some cases where filing separately may actually be of greater benefit to you and your spouse.

1. One of you is self-employed



The rules for those who are self-employed (freelancing, independent contracting, etc.) are very different from those who are working the more traditional 9-5 job. This is due to the fact that you are not only paying income tax, but you are also responsible for covering your own Social Security and Medicare tax. Since this is not coming out of your paycheck, self-employment tax rates for 2015-2016 were 15.3%.

Because of the differences in what you will have to pay, you are generally expected to make estimated quarterly payments to cover your taxes. If you have not been doing this, or you underestimate how much you will need to pay, this could set you back greatly and result in a large sum being taken from your refund. For those who are self-employed, it is sometimes advisable to file separately from your spouse. While you may lose some tax benefits, in the end, you may have to pay fewer taxes. It is important to weigh both sides in order to see which way you and your spouse will come out better in the long run.

2. You’re struggling With student loan debt



Debt deriving from paying for college is something which impacts approximately 70% of Americans. It is said the average debt for college graduates is around $30,000. This high number coupled with the difficulty of finding a job these days often presents young adults with many headaches. If you decide to repay your student loans through an income-dependent plan, this can become a little tricky when you are married.

The reason for this derives from the fact that if you and your spouse file together, your joint income will be considered for this type of repayment plan even if only one of you has debt. Therefore, when you file by yourself, only your income is considered in determining the kind of payments for which you qualify. Once again, in the process of filing separately you may lose specific deductions. However, if you do not have kids and take out standard deductions, the pinch will not be as drastic.

3. You have a lot of itemized deductions



Deductions are a great asset to utilize when doing your taxes as they help to reduce the amount of taxes you will have to pay. However, it is important to note the IRS does have an established limit of how much you can take off based upon your annual income. For this reason, it is important for you and your spouse to examine your deductions to see if separate or joint filing will give you the greater benefits. If you discover you both have numerous deductions you plan to claim, yet there is a substantial gap in what you earn, then filing separately would be the best route.

For example, if in the previous year, you paid a substantial amount of out of pocket medical expenses, you are allowed to deduct any amount which exceeds 10% of your adjusted gross income. If you have only earned around $25,000 within the past year, then you have a good deduction. However, if your spouse makes $150,000 and you decide to file taxes together, you are increasing your income and therefore increasing the 10% bracket. In a case such as this, it is a good idea to consider filing separately, allowing you to increase your deductions and reduce your out of pocket expenses.

In conclusion, these are just a few of the factors which married couples need to consider when filing their taxes. In situations where you are planning to divorce or you are concerned about being liable for your spouse’s tax debt, then it is advisable to file separately. However, in other cases, where the answer is not so clear, it is always a good idea to configure the numbers in order to discover the best way of receiving a good outcome on your taxes.
*This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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Is Social Security Taxable?

A question which often arises among those who are thinking about retirement is, “Will my Social Security income be taxed?” Generally speaking, the answer to this question is yes; however, there are deviations from this. Previously, Social Security income was not taxable. But things have changed. Everyone drawing Social Security gets 15% of their benefits tax-free. After this percentage, things change. If you rely exclusively on Social Security for your income, your entire benefits should be non-taxable. However, if you fall in the bracket of people who receive income from other outlets such as a 401(k), a pension, or a part time job, you are receiving more than the Social Security Administration limit allows for tax free-benefits and therefore up to 85% of your Social Security could be taxed.

IRS Income Limits:

As of 2015, the IRS limits for configuring tax liability of your Social Security income are as follows:

A person filing individually with a combined income (your Adjusted Gross Income + Nontaxable Interest + 1/2 of your Social Security benefits.) within the financial bracket of $25,000-$35,000 must pay income tax on up to 50% of their Social Security benefits. If an individual has a combined income of $34,000 or more, they will be required to pay income tax on 85% of the Social Security benefits.
For married couples who are filing together, if their combined income is between $32,000 and $44,000, they will be required to pay taxes on up to 50% of their benefits. If, however, their combined income is more than $44,000, they must pay taxes on 85% of the Social Security.
As of right now, no one pays taxes on more than 85% of their Social Security benefits no matter their financial bracket.
The monthly Social Security check averages around $1,294. This is an annual income of approximately $15,528. If your benefits are near average and this is your sole income, you will not have to pay any taxes on your Social Security. If you are not sure about your Social Security income you can consult form SSA-1099 for a summary of your benefits.

Federal Taxes on Social Security Income:

For those who have figured out that they will need to pay taxes on their Social Security, the tax rate is the same as regular income. To break it down, for every dollar over $25,000 that an individual makes, $.50 of their Social Security benefits could be subject to federal taxation. This number rises to $.85 when an individual claims an income over $34,000.

If 50% of your benefits are subject to taxation, the amount you include in your taxable income will be the lesser of either (a) half of your annual benefits or (b) half of the difference between your combined income and IRS threshold. However, if you figure out that 85% of your benefits are subject to taxation, things can get even more complicated. In order to help you better understand the tax liability on your Social Security, it is advisable to check into the worksheet and e-file software provided by the IRS. These sheets will help you to better calculate and understand your income tax.

The Impact of Roth IRAs:

Based upon the information above, you may be a little concerned about the taxes you will have to pay once you are in retirement. If this is the case, you might consider saving your money in a Roth IRA. With this type of IRA, you save after taxes. With a traditional IRA you will be required to take Required Minimum Distribution; however, with a Roth you have already paid the taxes on that money.
Because of this, a Roth IRA will not add to your provisional income; therefore, such an account will allow to draw additional income without going over the IRS threshold concerning Social Security.

You Can Make Social Security Taxes a little Simpler:

There are ways to avoid the shock of paying a large amount of taxes in one large lump. First, you can ask the Social Security Administration to withhold taxes from checks. This is simply done by submitting a IRS W-4V form. Second, you can pay your taxes on quarterly basis just like you would taxable investments.

State Taxes on Social Security Benefits:

Another question you may be asking concerning Social Security is how it works with state taxes. Will you have to pay state taxes based upon your Social Security income? This is a rather complicated question due to varying rules throughout the 50 states and the fact that some states offer exemptions and credits based upon age or income.
A majority of States exempt some Social Security income from their taxes, while states such as Alaska do not tax income at all. However, there are a handful of states which tax Social Society benefits to the extent that they are at the federal level. The best way to know the specifics concerning state tax is to check with your local authorities. As with federal taxes, if Social Security is your only source of income, you are exempt from paying taxes on your benefits


Although none of us enjoy paying taxes, there is a bright side: if you are having to pay taxes on your retirement, this means you are doing well. You are receiving income from other outlets
and not relying solely on your Social Security. Even though you may have to pay some taxes, having other financial outlets outside Social Security will provide more security in the long run.

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Six Most Overlooked Tax Deductions

Who among us wants to pay the IRS more taxes than we have to?¹

While few may raise their hands, Americans regularly overpay because they fail to take tax deductions for which they are eligible. Let’s take a quick look at the six most overlooked opportunities to manage your tax bill.

  1. Reinvested Dividends: When your investment pays you a dividend or capital gains distribution that income is a taxable event (unless held in a tax-deferred account, like an IRA). If you’re like most investors, you reinvest these payments in additional shares. The tax trap lurks when you sell your investment. If you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.²
  2. Job Hunting Costs: A tough job market may mean you are looking far and wide for employment. The costs of that search—transportation, food and lodging for overnight stays, cab fares, personal car use, and even printing resumes—may be considered tax-deductible expenses, provided the search is not for your first job.
  3. Out-of-Pocket Charity: It’s not just cash donations that are deductible. If you donate goods or use your personal car for charitable work, these are potential tax deductions. Just be sure to get a receipt for any amount over $250.
  4. State Taxes: Did you owe state taxes at the time of filing of your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return.
  5. Medicare Premiums: If you are self-employed (and not covered by an employer plan or your spouse’s plan), you may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance and Medicare Advantage Plan. This deduction is available regardless of whether you itemize deductions or not.
  6. Income in Respect of a Decedent: If you’ve inherited an IRA or pension, you may be able to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account.³
  1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
  2. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  3. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2015 FMG Suite.

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