Discussion:Which Spouse Pays How much?
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Discussion Forum Index --> Tax Questions --> Which Spouse Pays How much?
| 9 August 2006 | |
| Help me settle a debate: I'm a tech contractor who worked for equity only in 2006, with no payroll income, but had business expenses reported as a loss. My only real income was from my investments. I'd planned on offsetting my investment income wtih my reported business expenses, to reduce my tax. My wife is a W2 employee, and is applying my "business loss" to calculate her tax bill. We are married, no kids, simple tax situation. We got a $4000 tax bill, and need to help to determine who pays what portion of the tax bill. By what "process" or "calculation" can we determine who pays what portion of our tax bill? I'm using our individual (single) income and tax profile as a starting basis, to help attribute who owes what tax based on what we individually earned (or business loss) in 2005. Is their an accepted process to help couples make this determination? I will post the final results if this is of interest to others...Thanks!! | |
Death&Taxes (talk|edits) said: | 9 August 2006 |
| One way I have used, based on a Pre-Nup agreement, involves computing separate returns, adding up the total tax on these and then computing the percentage each spouse makes up of that total tax. Go back and use these percentages against the tax on the joint return, then subtract each spouse's prepayment. E.g., Jack and Jill compute a joint return showing $9000 of tax, with $5000 of withholding from Jill and no prepayment from Jack. On separate returns their tax totals $10,000, Jack's being $4000 and Jill's 6,000. Jack has 40%, Jill 60%. On the 9000 joint liability, Jack is responsible for 3600, Jill 5,400. Jill has to put $400 into the pot and Jack $3600 to make up the $4000 balance owed. This is rather simplified but it works. | |
| 9 August 2006 | |
| I like an even more simplified approach. What is the actual tax burden created by Tonto's net income (less any deductible expenses he actually paid)? Out of curiousity, how does one "work for equity" and not recognize income? | |
Green hunter (talk|edits) said: | 9 August 2006 |
| I would re-examine the assumption that you made on no eraned income. Although there are exceptions typically working for equity is taxable in the year earned. You might have a bigger problem than determining who pays what portion of teh tax bill. | |
| 10 August 2006 | |
| Thanks. I should rephrase. For 2005 and 2006, I'm building a software platform for which I'm the principal owner, but no income as yet. IN short, in 2005 I earned about $30,000 from my investments, and filed $13,000 in business expenses for 2005. My spouse paid out about $10,100 in payroll federal taxes on taxable income of about 80,000. But we have a $4000 tax bill, and need a clear process by which to attribute who owes what. If she low balled her W4, then she's been underpaying her payroll taxes. For marital bliss, how do I present a fair and accurate split? | |
| 10 August 2006 | |
| Kemo Sabe thinks Tonto takes current deduction for expenses that should have been capitalized. ♫ For marital bliss, pay the $4,000 and promise to cover audit disalowance. | |
| 10 August 2006 | |
| Hi agree Dennis an engineer who does his own return. An "unknowing" oinker. Bet you it is a second marriage. $30000 from investments and worrying about the split. Who does the housework? Sorry Tonto for picking on you. bye | |
Death&Taxes (talk|edits) said: | 10 August 2006 |
| Sorry to be like Wes, but first kiss her feet for being willing to sign a joint return, then do the computation Dennis or I suggest. Years ago I had a client with similar situation, except no business deductions. Wife agreed to buy him an IRA if they filed jointly; when he asked how much his signature saved her, she tore up the return and made another appointment to file separately. | |
| 10 August 2006 | |
| Thanks D&T. I appreciate your advice. This is our second project, a new beta for a US client for seismographic data visualization and migration. There are no guarantees until v/1, but it has a nice royalties license. btw, I pay the taxes every year; the question at this date is academic, in that we're not paying enough in wage deductions, and get stuck with a fat bill and a penalty. Wes, your'e too kind, but must be a pinhead living above your mother's garage. I'll think of you when I buy my wife a new A6 with my SGI royalties. Who does your housework, your mother? A witless Enron beaner... | |
| 10 August 2006 | |
| Odd. A programmer deficient in mathematics. If pie in the sky is real then current year is statistical anomaly and meaningless. Division of income tax liability would have to be based on average rather than discrete. | |
| 11 August 2006 | |
| I just entered the amounts you listed in my ProSeries Professional software. $80,000 wages and $10,100 federal tax w/h for your spouse and $30,000 short-term gains on Sch D and $13,000 loss on Sch C for you. The total federal tax is $13.486, and the total federal tax due (after withholding) is $3,386, assuming no estimated tax penalty, two exemptions, and the standard deduction on a joint return.
Then I completed the married filing separate worksheet. The total MFS tax due would be $5,836. Her share of the MFS tax due is $4,877 and your share is $959. After the MFS amounts are prorated, based on the actual tax due of $3,386, her actual amount due is $2,830 and your amount due is $556. I hope this answers your question. | |
| 11 August 2006 | |
| Also, she should revise her W-4 form, claim the same as she previously claimed and have an additional $55 withheld per week--to pay in an additional $2,830 per year. | |
| 11 August 2006 | |
| But that assumes this situation will continue forever (and that the $13K loss is legit). If you want the wife's withholding to be anticipatory, she has to pay in the full $15K MFS liability and get the refund from Tonto. | |
Green hunter (talk|edits) said: | 11 August 2006 |
| Tonto,
If I can add as Dennis and others have stated one thing to consider carefully. You do not have $13K in business deductions you have an expense that must be capitalized and possibly ammortized (See Sec. 263(a)) and possible not deductible (See Sec. 195)but these expenses cannot be currently deducted, actually it can't be amortized until your project generates income or the unrecovered basis is abandoned (Sec. 165). You should consider the same for your other similar projects or "investments". Although your question is simply a mechanical excercise that at least two people have provided a clear answer, I would suggest you consider the issue above and tell your wife before she signs any joint tax return. Finally, have you ever considered making estimated payments...its really very simple. | |
| 11 August 2006 | |
| Hi good come back tonto. Got a good chuckle and laugh. Obviously my skin is thicker than yours. I at least apologized for poking fun at you in the beginning. I only have to give my wife flowers to get lucky. Enjoy your free answers bye | |
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