changes in tax status

[thomascantor]

wavyarms' recent post has reminded me of a task I've meant to set for myself. Having recently wedded stealthmuffin, I am suddenly faced with more options than the usual obvious one when filling out forms of the W-4 ilk, and of course we have to decide whether to file jointly or separately for last year. This is tricky, because not only do we each have regular

Comments

[mindways]

Self-employed = having to fill out schedules C and SE (or, possibly, the

[thomascantor]

Yup, I've actually filed a Schedule C for the last nine years, so I'm very familiar with some of the ins and outs of that, at least as they pertain to me. The hobby category is new to me -- it certainly doesn't apply to me, but I wonder what the boundaries are for that (for example, does selling a CD that you made count?)

The big question for me is: what are the potential benefits/hazards of filing either jointly or separately when married? Obviously much of it will come down to our individual situation, which is why we'll probably hire a tax advisor in the next month, but I wonder if there are any general principals that apply to many circumstances?

[kmunson779]

We've filed jointly since we've been married; I've never really thought to do it any other way. However, when we fill out our W4's, we have them withhold at the single rate, and claim no allowances, or else we would end up having to pay a lot of extra money at tax time. (This is what comes of being married, yet childless.)

I also have them withhold $10 extra each paycheck, which means that I get money returned to me instead of having to pay anything. It's probably overkill, but after we got hit with a big bill to pay our first married year (1/2 year of Microsoft pay + no withholding on Art's grad student stipend = not nearly enough withheld) I'd rather not have that dropped on my head again.

[rissymonster]

Curious--do you guys own or rent your abode? This is all a pretty timely topic for us as well, since we'll be getting married this summer.

[kmunson779]

We own. That may play a role, but I don't know which way, offhand. The property taxes are taken out of an escrow acct that we pay into with our mortgage check; I don't remember how those affect our income taxes.

[thomascantor]

Yeah, I opted to check the higher single rate recently, although that will only apply to this year. I guess we'll figure out if either of us need to revisit that at our other jobs.

[outsidetheparty]

Squirrelhaven and I are both self-employed and married -- to each other, even! -- which seemingly would put us in a good position to answer this question... but I have to admit that our solution has always been "give it all to an accountant and let him figure it out." For what it's worth they've always had us file jointly (and quarterly), but it's probably going to depend on what tax brackets you would each fall into and what deductions you can take.

Don't neglect the business deductions, though; they can be a good deal: they're how I can afford to have a computer monitor that's substantially larger than our television, for example.

[thomascantor]

Thanks, that's helpful to know. Hmm, should get onto finding that accountant.

The deductions are important; I've deducted for gas mileage since I've had a gig in this area, and music and computer (well, a percentage of the latter) are part of it as well, not to mention much smaller incidentals.

[skyedwaggie]

It's always been more advantageous for us to file jointly. I haven't really analyzed why that is. The software I use tells me so. (I use TaxAct, used to use TurboTax)

What I've heard about the hobby vs. business is that a business must be profitable 3 out of every 5 years. Otherwise it can be classified as a hobby and expenses in excess of income aren't deductible. That's why I chose to depreciate the cost of my dulcian over a few years instead of taking the hit in one deduction - which I have the option to do, but I didn't make enough to offset the expense this year, so I'd be reporting a loss if I did.

I'd go crazy if I were trying to do all this with paper forms.

[thomascantor]

Oy, that's good to know! I think that I took a loss a few years running when I was starting out--though of course part of that was because I was in grad school during two of those years--and it didn't even occur to me to think that there would be any trouble there. My income overall may have been low enough that there weren't too many red flags, but still. The last few years I'm enough in the black (relatively speaking) that even the clavichord kit didn't push me under, but now that I'm on the payroll at the organ restoration company, I should keep an eye out, I suppose.

[pantshead]

We've filed jointly since getting married (2.5 years ago). Since the standard deduction for a couple is 2x the deduction for a single person (or at least it has been--I haven't cracked the book open this year), and we don't have enough stuff to deduct in an itemized way, this works out better for us. (Especially at our low incomes, I think we'd actually pay MORE taxes if we filed separately, but I admit I'm not certain

[thomascantor]

Interesting. What you mention makes sense. I haven't itemized deductions to date, since by far most of my costs have actually related to my self-employed income (which is pretty closely tied anyway to my salaried income). The same goes for stealthmuffin, I believe, who by the way has always done hers on paper. The last couple years I've filled out the paper forms using the numbers turbo tax gave me, just to try to understand a little better what was going on. We'll see what happens this year!