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Dealing with taxes as RE/nonRE couple
Old 02-10-2015, 03:27 PM   #1
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Dealing with taxes as RE/nonRE couple

I got married shortly before I retired last year (after many years together). My original retirement planning was based on having minimal taxes as a single filer. Now I'm not sure how best to handle this. My spouse has a growing small business and that will likely continue for another couple of decades, so filing our taxes jointly results in a much higher tax hit for me in retirement than would have been the case before.

How have other couples in similar situations handled this? Did you decide to keep things 50/50 no matter what, or did you ask your tax preparer to make some offline calculations to figure out a fairer split? (I should note that our finances will remain separate except for a joint account for shared expenses.)
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Old 02-10-2015, 07:25 PM   #2
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Seems reasonable to me if the income of one is particularly driving up joint taxes that that person pay more of those taxes, perhaps in proportion to his or her share.
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Old 02-10-2015, 07:33 PM   #3
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When I was still married but separated and living apart from my wife I was in this same situation. I asked this question, and a very level headed woman attorney who was at that time a prominent member here advised to just suck it up. I think it was very good advice, and I also think that it is even better advice when applied to your situation. You're married now, if you were to have financial difficulties is your wife going to kick you to the curb? Highly unlikely.


You might be able to pull this off, but it may well put a bad taste in her mouth. Usually women like a more openhanded and liberal stance toward them.


Ha
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Old 02-10-2015, 08:46 PM   #4
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If the spouse is paying lower taxes as part of a couple now, then you have some basis for having them help you out. If you're both seeing the higher taxes, you'll have to tough it out.
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Old 02-11-2015, 07:50 AM   #5
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I lean toward HaHa's thinking but I never understood keeping everything separate in the first place. If you are both committed to trying to live off your own means and really want to be "fair" about it, why not run your taxes as two single individuals first and assign that amount to yourselves, then run the married return and split the difference between you. That seems to separate out both the earnings impact and the marriage impact.
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Old 02-11-2015, 10:42 AM   #6
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I also lean towards HaHa's point of view. But, I do think if I were in this situation I might gently suggest donheff's idea. Lots and lots of financial stuff like this comes up in a long-term relationship (married or not) and I think as long as there is goodwill present, things do tend to smooth out/even out over an extended period of time.
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Old 02-11-2015, 12:21 PM   #7
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Quote:
Originally Posted by redduck View Post
I also lean towards HaHa's point of view. But, I do think if I were in this situation I might gently suggest donheff's idea. Lots and lots of financial stuff like this comes up in a long-term relationship (married or not) and I think as long as there is goodwill present, things do tend to smooth out/even out over an extended period of time.
That's true. I have no doubt we'll be together to the end. In a way, it's like using the bucket approach in investing. It's ultimately really all one pile, but it helps to think of it as separate portions. For now, anyway. By the time we're both retired and receiving Social Security, maybe we'll have evolved to the equivalent of the total return approach.

I appreciate everyone's input so far. Thanks.
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Old 02-21-2015, 04:50 PM   #8
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Perhaps an equitable approach would be to compute your taxes separately as if you were both still single and then allocate your joint taxes proportionally. I recall working with a couple that were divorcing a number of years ago and doing something along those lines that both parties felt was equitable.

That said, we have a pool so the issue never arises but we have been married for over 30 years but I can see that for older newlyweds that it could be an issue to be sorted out.
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Old 02-21-2015, 05:46 PM   #9
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1. Prepare the taxes with all relevant information.
2. Save the file. Print just the 1040 and the tax summary report.
3. Remove the Schedule C. Print the 1040 and the tax summary report.

This gives you something in black and white to discuss. The business should pay its taxes, IMO.
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Old 02-22-2015, 07:24 AM   #10
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I lean toward HaHa's thinking but I never understood keeping everything separate in the first place.
We've been married since we were young and broke. About a decade ago we did estate planning and did bypass trusts. This made us divide up everything... felt like a divorce (which DW reminds me I don't know what the word means). So, now with everything separated... how do we handle things, I pay almost everything... and we re-balance our assets periodically to keep the estate plan in order. No negotiation is needed, no request for re-balancing either ... it just works.
I have a friend who is married and keeps their $ completely separate. A couple years ago he would not fund her IRA to save taxes and he noted she probably would not want to do it with her money (from a small pension). Note he was still working and had a fairly high income. He wouldn't even consider it if she put in the part that was not saved in taxes.
I know there are marriages that have to work with everything separated... and there are reasons to do it... but many of these reasons tear at the idea of marriage being a union where 2 become 1.
You likely need to negotiate how to deal with this. If you have decent amount of income yourself, you both will likely pay more by being married (marriage tax), or less if your income is small. Divys and CG may all be taxable. Filing separately may not help as you hoped since the tax rates are higher than single filing. Do your taxes separate and together... and discuss how best to deal with it.
Keeping $ separate for estate planning makes sense... but I don't understand it in our day to day relationship.
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Old 02-22-2015, 08:11 AM   #11
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Yeah, that's a pretty nasty shock, isn't it? DH and I married when he was 65 and I was 50; we moved for my job and he filed for SS. Neither of us had a clue that 85% of his SS would be taxable because of our joint income. I lost my Single Head of Household status, too. (DS was 18 and in college.) We have a system that works for us but would probably scare the heck out of most people: at any given point DH has less than $200 in his checking account and everything else but a $15K IRA and a $25K joint account at Fidelity are solely in my name. So, he was handing most of his SS over to me (and I was investing most of it) and I paid all the bills. So, I guess the additional taxes on his SS came out of my income when I was working, but it didn't matter.


If you don't have tax software you should get it to run some "what-if" scenarios. I like donheff's suggestion.


Also, to haha's point, you need to remember that being married to someone still working may have other advantages that mean you're spending less of your own income. I was able to keep DH on my employer's insurance, for example, which was a lot cheaper than the Medicare/Medicare Supplement/Prescription/Dental he had to get after I retired. To be realistic, he'd never be able to live in the house we have or travel the way we have (and will in the future) with his SS and small savings. You may be enjoying a similar lifestyle upgrade! It's something to keep in mind when figuring out how to split the taxes.
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Old 02-22-2015, 08:55 AM   #12
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Each of you does your own return as married filing separately. Then there is no argument about who owes what.
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Old 02-22-2015, 03:13 PM   #13
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Originally Posted by athena53 View Post
Also, to haha's point, you need to remember that being married to someone still working may have other advantages that mean you're spending less of your own income. I was able to keep DH on my employer's insurance, for example, which was a lot cheaper than the Medicare/Medicare Supplement/Prescription/Dental he had to get after I retired. To be realistic, he'd never be able to live in the house we have or travel the way we have (and will in the future) with his SS and small savings. You may be enjoying a similar lifestyle upgrade! It's something to keep in mind when figuring out how to split the taxes.
It's more the opposite in our case -- for example, I was the one paying the medical/dental insurance for both until I retired, and now we're each paying our own. And we continue to consider our income needs separately, except for the shared-expenses account. Because we're both frugal, there's no tension around our individual spending.

For us it's like a relay race, since I had a much earlier start in a corporate career and, like you two, we have an age difference. The way we look at it: I've done my laps and passed the baton to my spouse for the remaining laps. I think once the race is over, we'll look at things 50/50, but we're still a couple of decades away from that.
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