Taxes for Lovers
With Valentines Day coming up, let's explore the theme of just how romantic income taxes can be - or how it can totally bust up relationships!
Being a TaxNerd , I must admit that before Rick and I got married, we checked to see the tax advantages of getting married before or after midnight on New Year's Eve. We opted for first thing on New Year's Day - and arrived in Las Vegas at dawn to start our new life together.
Why? Rick could still file his tax return early in January as Single for the previous year - and get his heft refund immediately.
There are the generous guys who support their girlfriends - and perhaps the children of their girlfriends, and want to know what tax benefits are available to them. Generally, they ask after the fact, when they haven't taken the time to do any planning to ensure they can claim a dependent's exemption; when they haven't taken the time to ensure their support would entitle them to deduct medical expenses, or snag an EIC or Child Tax Credit, or...You've got to love these fellows. But, how about catching them early and helping them do some planning?
There are the charming newlyweds who haven't really sorted out their filing for the year. Sometimes they ask, since I was single for most of the year, can I still file as single now? It works out better. Or they are shocked to learn their new spouse has some ugly tax debt or student loans causing refunds to be garnished. they never discussed any down-to-earth financial issues before blissfully tying the knot. Or there's the delightful surprise from seeing the larger refund on the joint return.
I especially love the opportunity to do some planning to help one of them quit working while the other builds the nest and family. Each time we've done this planning over the years, it's been a joy to see that family grow and flourish - and still able to maintain the lifestyle while the children are at home. Try it. A little budgeting and career or business planning make all the difference.
Particularly touching are the convoluted tax issues that arise for same-sex couples and registered domestic partners (same or opposite sex). While liberals and conservatives battle in the political arena, real people's lives are affected. Real children are adopted, or not. Real, long-term relationships are ripped apart by complicated tax filings as their relationship status changes from legal to illegal one-year to the next. The tax issues are highly complex, because what may work on a state level doesn't work on a federal level.
Love Gone Wrong
Of course, there's all the hostility and manipulation that comes about during divorce. The fight over assets - and the clever way you can make the hostile spouse believe s/he is getting an equal split - when the tax basis of the assets are very different. The nastiness that comes about when one spouse steals the exemptions and benefits for the children s/he isn't entitled to claim. Or the legitimate confusion when both parent provide equal and fair support.
Tax Fraud in Love
Then there are those delightful folks who don't seem to know if they are married or not - at least not for tax purposes. How many times have you met people filing as head of household to claim the EIC and other credits when they are really married and would not qualify if they filed a joint return? Or those folks who claim their family members' children, whom they've never supported, or perhaps even met. You'd be surprised at the bizarre things I've seen just this past year!
There was one woman needing a 1040X for a First Time Homebuyers Credit who had claimed her niece's children in Mexico on her original tax return. She didn't know their correct names or their dates of birth. She didn't even really know where they lived. But she was sure as heck supporting them - according to her.
I haven't even begun to touch on all the iterations of relationships that come across my desk. You've probably seen some relationships that are particularly interesting or funny.
Consider writing an article or two about tax relationships in your local religious newsletters and local papers this week. You'll pick up new clients galore!
Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.