If you’re a masochist who still hasn’t filed her taxes, great news! I’ve found a wonderful money-saving tip for you and your wife. As we all know, thanks to DOMA the IRS doesn’t let gays — whether married or otherwise — file jointly. This is costly! But there is a solution: simply hire each other as your kids’ nanny.
The New York Times looks at Michigan’s Amanda and Kay Shelton, who in addition to worrying about legal guardianship of their two kids also have to fend off Uncle Sam’s onerous taxation scheme while saving for retirement. Time to hatch a sneaky plan to fool the government. Legally!
If the Sheltons could file their federal returns jointly, they would save several thousand dollars in taxes. Instead, Amanda files her federal tax return as “head of household,” and claims the children and Kay as dependents. Tax rates are higher for people who file as head of household compared with couples who file jointly, so they end up paying at least $3,000 more, according to Tina Salandra, an accountant and president of Numerical L.L.C. But they could do something that would help Kay save for retirement: Amanda could hire Kay as a nanny and pay her $3,649 a year, which she could then put into a Roth I.R.A. (Kay needs to earn less than $3,650 for Amanda to continue to claim her as a dependent, Ms. Salandra said.) Kay and Amanda would both owe Social Security and Medicare taxes, and Amanda would need to pay state unemployment taxes. That’s roughly $644 in total, but Amanda could deduct her share of the payroll taxes as itemized deductions on her return.
Somehow, after reading the U.S. tax code’s 3.4 million words, this little hack never dawned on me. [photo via]