In our prior post, we talked about changes that are being made to the federal tax code this year that will certainly have an effect on the tax returns of many individuals in California and across the nation. Specifically, it is one of the few “tax” times where divorced individuals are favored.
Medicare tax and the tax on net investment income above a certain threshold — now $200,000 for single taxpayers and $250,000 for married couples — was discussed in the prior post. There are two more major tax changes that actually make filing single a money-saving venture for some.
The second change occurred in the new Fiscal Cliff Deal. This affects a much smaller population of American taxpayers. In fact, it affects only that top 1 percent of income earners, but many of them do reside within California boundaries. This is the increase in the maximum rate on ordinary income and long-term capital gains. Those were increased from 35 to 39.6 percent and 15 to 20 percent, respectively.
How does this matter for divorced versus married couples? Again, it comes into play in the threshold levels that trigger the taxes. For single taxpayers, they are hit at $400,000 of taxable income for the 39.6 percent and married couples are hit at a combined taxable income of $450,000. This same threshold applies to the long-term capital gains tax, and again, married filing separately doesn’t help.
Finally, changes will take affect that address itemized deductions and personal exemptions. If you are a single taxpayer, your deductions and exemptions will begin to phase out once you hit the $250,000 adjusted gross income level. For those that are married, it is a combined adjusted gross income of $300,000 that needs to be passed. Again, don’t think that filing separately will change this threshold. It will simply be divided and each spouse will have a new threshold of $150,000 — instead of the $250,000 threshold had they gotten a divorce.
Source: Forbes, “Want To Save On Taxes? Get A Divorce,” Tony Nitti, Jan. 22, 2013