December 16, 2004

Marrying for Money

As regular readers of rohitsrealm.com can attest to, I have in the past often made remarks regarding the purported financial benefits of marriage. However, considering that I will be starting a real job in about six months and I am in the mood to procrastinate, I thought I would spend some time investigating what, if any, financial benefits (obviously, there are no others) I could derive from marrying strictly for monetary reasons.

The only problem with this plan is that doing taxes is a horrendous, damn near impossible task and if I actually wanted to get an accurate picture, I'd probably have to spend two weeks going through the motions of filing returns. I do not have two weeks nor do I have the patience to actually file taxes for no reason. Instead, I'm going to do a so-called back of the envelope calculation (on a side note, who actually does calculations on envelopes?) with gross oversimplifications and generalizations. If you have a problem with this, well . . . go to hell. Or use the comments section. That is what it is for.

First, to get a rough idea of what a single adult would pay in taxes, I'm going to take the average annual salary of this hypothetical single adult to be $60,000, based on Career Center statistics. For simplicity, I am not going to count bonuses or any other compensation and I am only going to consider federal taxes with a standard deduction.

Based on the IRS Tax Rate Schedule for 2003, here is what the calculation becomes:

$3,910.00 [($60,000 - $4,750) - $28,400] * 0.25 = $10,622.50

or 17.7% of the total annual salary. Wow! That sucks. Enter the tax-deferred retirement plan by the wily name of 401(k). Let's say our ambitious young adult decides to put $10,000 into his or her tax-deferred retirement account. The calculations then are:

$3,910.00 [($50,000 - $4,750) - $28,400] * 0.25 = $8,122.50

or 13.5% of the total annual salary. Of course, you lose $10K to the black hole of retirement plans, but at least it is not with the government!

OK. I hear wedding bells tolling. Let's see what happens when our recently married young friend files for taxes jointly with his or her spouse, who we will assume also makes $60,000, once again considering no other compensation and only federal income tax. With standard deductions, the calculations are as follows:

[$7,820.00 [($120,000 - $9,500) - $56,800] * 0.25] * 0.5 = $10,622.50 per person.

What?! No tax break?! Oh man! So much for getting married. Let's check the 401(k) thing again:

[$7,820.00 [($100,000 - $9,500) - $56,800] * 0.25] * 0.5 = $8,122.50 per person

or exactly the same as if our friend had never gotten married!

After some research, I discovered many new things. First of all, there is something called a marriage penalty caused by an outdated tax code that can actually cause married couples filing jointly to be taxed more than if they were single! Further, this a penalty is most severe on couples who earn a similar salary. So while marriage does significantly help you with taxes on capital gains and real estate, for someone coming out of college, it is fairly pointless. There goes my plan to marry my roommate for money!

All hope is not lost, however. In the course of my venture into the wonderful world of tax evasion planning, I found a new gold mine of tax deductions, which I will dutifully explore in my next entry. Until then, resist the urge to get married—it definitely is not worth it!