Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

EXTREME YEAR-END TAX PLANNING

December 30, 2007

The Tax Update's 16-year old son is the bass player for a little jazz combo. They had their first wedding gig last night, which makes my romantic mind ponder whether the happy couple could have paid the band with their tax savings had they put off the wedding for a week. It matters - your marital status on the last day of the year is your status for the entire year, for tax purposes.

Congress attacked the marriage penalty with much fanfare a few years ago, but as with most things politicians talk a lot about, it was more talk than action (it's the stuff they don't talk about that really causes trouble). They did get rid of the marriage penalty for the 15% tax bracket, but at higher income levels, getting married still carries a tax penalty. If our happy couple were both upwardly mobile professionals with taxable incomes of $74,200 in 2007, getting married in 2007 would cost them $597 - and that goes a long way towards paying the band.

In addition to the penalty built into the rates (and, some misanthropes would say, into the institution), there are some other tax penalties to marriage. These include a quicker phase-out of itemized deductions and a reduced ability to deduct capital losses.

So if tomorrow is the day you and yours plan to yoke your fates together, best wishes - especially if you try to convince her to wait a week to save on your taxes.

And if you are the person who found the Tax Update with the Google search, "how much tax savings for a new baby before year end," now that's extreme tax planning. But go for it! A baby born today or tomorrow gets you the same 2007 $3,400 dependent exemption and $1,000 child credit as one born last March. Or you can at least get started on next year's tax planning.

Now, ladies and gentlemen, get ready to ring out 2007 with The Saturn V: