Don"t Get Married, Until You Ask Me
MWIB Series My Way Is Better Don't Get Married, Until You Talk With Me It seems as though marriage is made up of many things.
Love and romance ranks among the top of the list, at least at the beginning.
Why do marriages fail? One of the top reasons is financial management, or the lack thereof.
Too many times, the business part of marriage is overlooked.
Money might not be the most important thing to a relationship, but reality dictates that it is important enough to warrant attention.
Consider the reality that two individuals will now be forming a union.
Presumably, each member of the union kept and individual checkbook and filed a tax return.
Three checkbooks just might be the answer.
What if each person keeps their own checking account as before the union and a new checking account is formed jointly.
This newly formed joint checking account will be used to pay household bills and will be populated with deposits from each member.
Depending on lifestyle issues, the deposits can be based on a fraction of each person's income over the total income multiplied by the household expenses.
There is also wisdom in forming a joint saving account in order to save for a home purchase or repairs to an existing home (more on saving in a later discussion).
The number one complaint that I hear from couples is a lack of financial freedom in the sense that they can spend some money without checking with the other.
For instance, if one wants to buy the other a present, the surprise is lost if a joint account is used.
Additionally, if one likes golf and the other is in exercise class, money from the personal accounts can be used.
By agreeing to this format upfront, there is a proper negotiation for paying joint bills and having discretionary funds.
A slightly more complicated issue involves the filing of income tax returns.
It is important to note that whenever a couple is married during the year, they are deemed to be married for the entire year.
That is to say, if a couple is married on December 31, 2015, they are married for all of 2015.
This is important upon the consideration of two once separated incomes now being added together to form one joint filing of a tax return.
Please take some time to understand what the consequences will be when this happens.
What if each person makes $70,000 of income individually.
A joint return will put income at $140,000 and will have some of the taxable income face a 33% rate.
Individually, there will be no income tax withheld at the 33% level.
This could cause an amount due when the return is actually filed.
Another issue arises when each prepares their respective W-4 forms (withholding allowances and filing status).
If each claims to be married and claims one exemption, there will be yet another withholding problem.
The married filing joint return allows for a standard deduction of $12,400.
If each person claims married on form W-4, they will each get a standard deduction of $12,400 as this amount is built into the tax withholding tables.
When the return is actually filed, only one standard is allowed.
This will cause under withholding on one of the standard deductions claimed in the withholding tables.
Get around this problem by filing forms W-4 as single.
To handle the combination of two incomes creating a higher tax rate, consider having each contribute to a 401(K) plan that will serve to have taxable income reduced.
There are other strategies that can be used but are slightly more complex.
We will discuss these at a later time.
When studying the consequences of merging the financial aspects of a marriage, it might be necessary to delay the merger date in order for proper planning to take place.
As always, you are free to do as you like, but my way is better.
taxguy9@hotmail.
com
Love and romance ranks among the top of the list, at least at the beginning.
Why do marriages fail? One of the top reasons is financial management, or the lack thereof.
Too many times, the business part of marriage is overlooked.
Money might not be the most important thing to a relationship, but reality dictates that it is important enough to warrant attention.
Consider the reality that two individuals will now be forming a union.
Presumably, each member of the union kept and individual checkbook and filed a tax return.
Three checkbooks just might be the answer.
What if each person keeps their own checking account as before the union and a new checking account is formed jointly.
This newly formed joint checking account will be used to pay household bills and will be populated with deposits from each member.
Depending on lifestyle issues, the deposits can be based on a fraction of each person's income over the total income multiplied by the household expenses.
There is also wisdom in forming a joint saving account in order to save for a home purchase or repairs to an existing home (more on saving in a later discussion).
The number one complaint that I hear from couples is a lack of financial freedom in the sense that they can spend some money without checking with the other.
For instance, if one wants to buy the other a present, the surprise is lost if a joint account is used.
Additionally, if one likes golf and the other is in exercise class, money from the personal accounts can be used.
By agreeing to this format upfront, there is a proper negotiation for paying joint bills and having discretionary funds.
A slightly more complicated issue involves the filing of income tax returns.
It is important to note that whenever a couple is married during the year, they are deemed to be married for the entire year.
That is to say, if a couple is married on December 31, 2015, they are married for all of 2015.
This is important upon the consideration of two once separated incomes now being added together to form one joint filing of a tax return.
Please take some time to understand what the consequences will be when this happens.
What if each person makes $70,000 of income individually.
A joint return will put income at $140,000 and will have some of the taxable income face a 33% rate.
Individually, there will be no income tax withheld at the 33% level.
This could cause an amount due when the return is actually filed.
Another issue arises when each prepares their respective W-4 forms (withholding allowances and filing status).
If each claims to be married and claims one exemption, there will be yet another withholding problem.
The married filing joint return allows for a standard deduction of $12,400.
If each person claims married on form W-4, they will each get a standard deduction of $12,400 as this amount is built into the tax withholding tables.
When the return is actually filed, only one standard is allowed.
This will cause under withholding on one of the standard deductions claimed in the withholding tables.
Get around this problem by filing forms W-4 as single.
To handle the combination of two incomes creating a higher tax rate, consider having each contribute to a 401(K) plan that will serve to have taxable income reduced.
There are other strategies that can be used but are slightly more complex.
We will discuss these at a later time.
When studying the consequences of merging the financial aspects of a marriage, it might be necessary to delay the merger date in order for proper planning to take place.
As always, you are free to do as you like, but my way is better.
taxguy9@hotmail.
com
