Ask Me Help Desk - Spouse's untaxed income

My wife earns income throughout the year but refuses to have taxes taken out or make quarterly estimated tax payments. When combined with my appropriately taxed income on our year-end joint return, her untaxed income results in a sizable tax-due as well as an underpayment penalty. She offers to contribute, but refuses to pay the additional tax as established by her income, our filing status (MFJ), and our combined deductions and credits. She argues that her tax bill should be based on the lowest tax rate available - HH. :confused: If the additional tax due were a few hundred bucks, I'd suck it up and pay the tax on her income just to avoid the annual arguments. Unfortunately, the amount in question is significant - several thousand dollars. :eek: So I ask... if my approach to determining tax due on her income is flawed - as she says it is, what is a reasonable strategy?

You should do your tax returns as married filing separately and then compare it with married filing jointly. You will get a better picture. Read http://taxipay.blogspot.com/2008/02/...r-married.html

Quote:

Originally Posted by MukatA

You should do your tax returns as married filing separately and then compare it with married filing jointly. You will get a better picture. Read Your U.S. Tax Return: Filing Status for Married

I've explored MFS in prior years. MFS has always resulted in an larger tax bill on both sources of income. In fact, MFS on just my income results in a larger bill for me on my separate return than MFJ on both my income and my wife's untaxed income.

Was this suggestion offered as an approach to estimate tax due on just her income?

Why willl she not pay her taxes as should be done, how does her employment allow this

Well, it's not as it may sound; there is no tax evasion motive.

She's self employed. Income is reported via 1099-MISC. There is no requirement for taxes to be withheld from income payments. At years end, she is willing to pay taxes... But like anyone else, she wants to minimize the amount she must hand over to uncle sam.

The problem is I can't find an approach that establishes an 'equitable' tax, that doesn't leave me having to pay the balance of total tax due -- a balance that I contend is her (.. her biz) responsibility.

My approach goes something like this: I have my witholding perfectly tuned to balance year-end tax due based on MFJ and my income only. So if she had no income, there would be no addtitional year-end tax due. In theory then, any change in that balance brought on by her additional income that generates a corresponding increase in tax is her (her biz) responsibility.

She disagrees argueing that the tax rate as established by MFJ and our combined income results in an excessive and unfair tax burden on her smaller biz income. She contends that she should owe nothing more than the tax as established by either HH or MFS tax rate applied to her income only. And admitteedly, either tax rate when applied to her smaller income results in a smaller tax bill than the my approach.

So the question is, what is an equitable approach to determining her business income tax due?

Your wife is wrong, because she is pretending that you have two separate income streams and that should each taxed at their own rate as if you were not married, whereas the actual tax rate is based on the combined income of the household. She would like to think that she should pay the same as a single person, even though she is married. Obviously ths is not reality.

One question - not knowing your personal situation, it sounds like your wife and you each keep your finances totally separate, and hence the arguments over who pays the taxes. Do you have a joint account that you both contribute to for household expenses (food, rent, property taxes, etc), and if so why not just pay the tax due out of there?