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Marriage Tax Penalties in "Fiscal Cliff" Taxes
(Jan 02, 2013)
President Obama promised
to sign legislation to allow gay marriage; then he signed a new tax law that
penalizes married couples.
-- The US Congress just passed a new law that
increases the taxes of all Americans in many areas of the tax code. The new bill does
nothing to cut spending. And the new bill does not address our
out-of-control deficit, now at $17 trillion. Nor does it address our
looming debt ceiling.
But let's take a gander at a couple of the unintended tax
consequences that Congress and President Obama just foisted upon all married
couples. That consequence is what's known as "The Marriage Penalty
Remember in the old days when inflation was only trotting
along instead of galloping like it is today, and your IRS 1040 Tax Return
listed exemptions or deductions for single and married couples? The
deduction for a married couple was not double the deduction for a single
person. In other words, it was more advantageous, tax-wise, for
married couples to get a divorce and just live together as man and wife in
order to double their tax deductions and exemptions.
This same anomaly -- called a Marriage Penalty Tax -- was
stupidly passed in at least three sections of yesterday's House and
Senate-approved "Fiscal Cliff" tax bill and President Obama will now sign
off on this encouragement-to-get-a-divorce tax.
What are the new tax snafus that will penalize married
Snafu # 1: Income tax rates have now been increased
from 35% to 39.6% for individuals earning over $400K, $450K for a married
couple. That means your spouse is only worth $50K for tax sheltering
purposes. Hey, get a divorce, live together and your total tax
deduction will be $800K. Ironically, Congress' new "Fiscal Cliff" tax
law encourages divorce. If you are a small business filing as a sole
proprietor, it may be very important to you to shelter $800,000 as two
individuals vs. only being able to shelter $450,000 as a married couple.
It may make or break your business. It certainly could encourage the
break-up of your marriage.
Snafu # 2: Personal income tax exemptions --
different from increased tax rates in Snafu # 1 above -- are phased out for
incomes over $250K, $300K for married couples. Again, your spouse is
discriminated against by this new tax law and he or she is only worth
$50,000 instead of $250,000 for an individual. Once again, you are
encouraged by the new "Fiscal Cliff" tax law to divorce your spouse, stay
living together, and go for the $500,000 for two individual tax exemption
vs. the $300,000 tax exemption for married couples.
Snafu # 3: Capital gains taxes are increasing from
15% to 20% for earners over $400K, $450K for married couples. For a
third time in this "Fiscal Cliff" tax bill, your wife or husband (spouse if
you're gay), is only worth $50K instead of $400K. That's another slap
in the face of individual rights under the tax law. For the third
time, get a divorce and you can avoid the higher capital gains tax by
raising your sheltered earnings from $450,000 for a married couple to
$800,000 for an unmarried "couple."
Just think, depending on your professions and savings,
you and your spouse could fall into all three Snafu categories above.
Get a divorce and you both could be better off to the tune of $350K + $200K
+ $350K = $900,000 in tax sheltering. Hey, take some of that sheltered
tax money and go on a Big Tax Divorce Vacation to the Bahamas and live it
up! Invite your friends.
Note that gays who were thrilled that President Obama
vowed to sign an Executive Order or legislation to allow gay marriages have
just been screwed at least three times by the unintended
consequences of Obama's new Fiscal Cliff tax law. Gays who have been
demonstrating in the streets for Gay Marriage may want to re-think what they
Gay or Straight, you may well want to re-think your
entire business and investment strategies in light of Obama's and Congress'
new Fiscal Cliff Tax Law and its three Marriage Penalty Snafus worth almost
a million bucks. "Yes, until death or taxes
do we part, my dear... at least on our tax returns..."
– FM Duck
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