Author Topic: Tax planning - logical puzzle  (Read 1955 times)

FiguringItOut

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Tax planning - logical puzzle
« on: June 11, 2015, 12:40:35 PM »
My ex received a fairly large bonus in early 2015 and then a severance payout in the Spring of 2015.  Both of these were taxed "high" meaning more taxes were taken out and will be returned during tax time of 2016.  Then he was unemployed for couple months and now started working again.
At his current job he doesn't have any tax deductions coming out of his paycheck (medical, 401k, etc), just regual tax withholdings.  I'm not sure what he set his withholdings to either.  This new job he has is a 30% pay cut from his old job.

I just accepted an offer for a new job, with 25% raise.  I will have medical, FSA or HSA, childcare flex, and some 401k deductions coming out of my paycheck. 

It doesn't look like his pay cut and my raise changed out tax bracket ($200K combined income at the beginning of the year vs $175K combined income as of next week).
He may or may not get a better paying job before year end, however all medical and childcare deductions will remain with me.

2015 is the last year we will be filing taxes married filing jointly.  Whatever the result of this will be whether return or payment we will split equally. 

I would like to minimize the amount I will have to pay out of pocket, but also I don't want to have a large return by not withholding enough, since I will have to split it with him.

Logically, I'm thinking that we should get a tax returned for his over-taxed bonus and severance.  So if I under withhold a little, it should even out.  Does this sound right?

Should I have extra withholdings added to my W-4?

Ideally, I'd like to offset his tax return with my tax payment as much as possible and come out at net zero.  How do I accomplish this?

Am I missing anything here? 

Cheddar Stacker

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Re: Tax planning - logical puzzle
« Reply #1 on: June 11, 2015, 12:50:51 PM »
My ex

2015 is the last year we will be filing taxes married filing jointly. 

If he's officially your ex, like full on divorced or will be by 12/31/15, then you can't file a joint return. Your marital status is determined on the last day of the year.

If you will still be married on 12/31, then: if the split was fairly amicable, I think you guys should discuss this. The 50/50 split of refund/balance due gives you both ample motivation to stop all withholdings immediately. The less you pay, the more he has to pay, and vice versa.

If you're going to change your withholdings, you want to increase your exemptions in order to reduce your withholdings.

FiguringItOut

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Re: Tax planning - logical puzzle
« Reply #2 on: June 11, 2015, 01:13:19 PM »
My ex

2015 is the last year we will be filing taxes married filing jointly. 

If he's officially your ex, like full on divorced or will be by 12/31/15, then you can't file a joint return. Your marital status is determined on the last day of the year.

If you will still be married on 12/31, then: if the split was fairly amicable, I think you guys should discuss this. The 50/50 split of refund/balance due gives you both ample motivation to stop all withholdings immediately. The less you pay, the more he has to pay, and vice versa.

If you're going to change your withholdings, you want to increase your exemptions in order to reduce your withholdings.

We will be still be legaly married on 12/31 but officially separated.  Will sign final divorce papers in early 2016. 

The less you pay, the more he has to pay, and vice versa - but how does this play with him already "overpaying" due to his bonus and severance?

If you're going to change your withholdings, you want to increase your exemptions - you mean the exemptions on the W-4 personal allowance worksheet, right?  Sorry, but am very confused by these things.

Axecleaver

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Re: Tax planning - logical puzzle
« Reply #3 on: June 11, 2015, 02:21:18 PM »
Advice will differ depending on whether you are on good terms and can negotiate this to your mutual benefit, or whether you want to maximize your savings to the detriment of your ex.

The fairest solution, agree to split the tax bill proportional to your incomes. So, if in 2015 you end up making $100k and he made $75k, you would pay 100/175=57.1% of the taxes due. Compare the total taxes due to the withholding for each of you. That calculation will show you who owes who money. Most likely, you'll have to pay, because we know he withheld a lot of taxes for his prior job's bonus. Then apply that adjustment to either your net taxes due, or apply the refund to whomever it's owed.

If you were to lower your taxes withheld, it may get you closer to a zero refund/tax owed in April, but the fairest calculation would consider the taxes withheld, not just what was owed at the end of the year.