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Non-Traditional Couples Identified as Biggest Tax Winners by Tax Strategist, ``Loopholes of the Rich'' Author Diane Kennedy.

Business Editors


Non-traditional couples choose to define what "partners" means to them, and they could save lots in tax dollars, because of it.

There are a host of legal tax planning techniques not available to married couples, says Diane Kennedy, CPA, tax strategist and best-selling author of Loopholes of the Rich: How the Rich Legally Make More Money and Pay Less Tax." Taxes are the single biggest expense of Americans today, and one small change can make a tremendous difference to the couple's bottom line. But the planning, and execution, is key, she says.

A domestic partnership, defined as two or more adults, not married but sharing a life together, provides a lower tax rate by taking advantage of two tax rate tables. Here's how Kennedy demonstrates her theory:

Tax rate tables

Periodically, there is a lot of press about the "marriage tax penalty." This is a very real issue for married couples as they find that their combined income pushes their "marginal tax" rate to a higher level. For example, two single people earning $26,000 each would have the first "income layer" (up to $6,000) taxed at 10%, and the next layer (above $6,000 up to $27,950) taxed at 15% However, once they are married, their joint income is taxed for only one of the 10% layer and one of 15% layer. Each additional dollar for the single taxpayer would cost them 15% while each additional dollar for the married taxpayer costs 27%!

Itemized/Standard Deduction

A taxpayer is allowed either an itemized or a standard deduction. In the case of a married couple, they can only elect one or other. If they file using "married, filing separately" status, there are even more penalties.

A domestic partnership can take advantage of both deductions by allowing one partner to take the full mortgage interest and property deduction and the second partner takes advantage of the standard deduction. This means more write-offs and less tax!

Tax Strategies for Domestic Partners

There are also unique benefits only available to domestic partners. Here's one strategy used by Alec Tanner, Mortgage Broker with Keystone Mortgage in Phoenix, AZ.

In addition to his mortgage brokerage business, Alec is a successful real estate investor - buying houses, rehabbing and selling at a profit. By investing with his partner, he is able to take advantage of twice the borrowing capacity. Plus, he can sell the fixed-up property (bought in his name) to his partner at the new fair market value and take out the cash difference at the lower capital gains rate. If the fixed up property happened to be his principal residence that he had lived in for two of the previous five years, he wouldn't even have to pay tax on the gain. He'd get the cash out, tax free, and his partner would have a great future rental.

For anyone who needs another reason to avoid being average, consider this. The average 50-year-old American taxpayer has no net worth. This means that the average 50-year-old has worked for 25 to 30 years and, as a result of that hard work, accumulated nothing. What happens 15 years later, at retirement age? With declining health, reduced energy and a bleak future, they look at the remaining years of their lives, and study their dwindling resources as they see their future stretching into hopelessness. With this as the results, who wants to be average?

The statistics are against those who want to be average. Many people are finding ways to change thoughts about income, and taxes, if their goals are to have different results.

Diane Kennedy, CPA-Tax Strategist, author of Loopholes of the Rich, congressional consultant, educator and a member of Robert Kiyosaki's best-selling Rich Dad's Advisor team. Diane's credo is "it's not how much money you make but rather, how you make your money." Kennedy takes complicated tax strategies and turns them into easy-to-apply tax savings tips for everyone, including small business owners, entrepreneurs, independent consultants and corporate employees interested in developing a sideline business. Tax tips and educational information is available at
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Publication:Business Wire
Date:May 29, 2002
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