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Can I make gifts to my spouse to equalize our taxable incomes?
April 30, 2012 7:48 AM   Subscribe

My wife and I file our federal taxes jointly but our Iowa taxes separately. She works part-time and has a fraction of my income. It appears that we would pay lower state taxes if our income was split more evenly between us. Can I make gifts to her (of cash or perhaps shares), deduct them from my taxable income, and add them to her taxable income?
posted by East Manitoba Regional Junior Kabaddi Champion '94 to Work & Money (7 answers total) 1 user marked this as a favorite
 
The IRS data on gift taxes would suggest that you can't.
posted by ThePinkSuperhero at 7:56 AM on April 30, 2012


It appears that we would pay lower state taxes if our income was split more evenly between us.

Isn't this the point of filing jointly?
posted by alms at 8:16 AM on April 30, 2012 [1 favorite]


Iowa doesn't work that way it seems. We always benefit by filing separately (on a combined return). This is common practice for couples in Iowa.
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 8:17 AM on April 30, 2012


No. (With the disclaimer that I am not a lawyer, much less a tax lawyer, much less an Iowa tax lawyer.)

The relevant Iowa regulations are here.

In general, "incomes received by the taxpayers and the deductions for business expenses are allocated between the spouses as the incomes and deductions would have been allocated if the taxpayers had filed separate federal returns." Gifts to a spouse are not subject to the federal gift tax, so there would be no tax consequences of such a gift. And even if there weren't that exemption, you can't deduct a gift from your return, so it would just add to the total taxable income. And even if you WANTED to add money to her return - which you wouldn't - federal law exempts the first million.
posted by Mr.Know-it-some at 8:27 AM on April 30, 2012 [1 favorite]


Great answer, thanks!
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 8:29 AM on April 30, 2012


It occurs to me that this only prevents me from deducting the gifts from my taxable income. It doesn't prevent me from ensuring that, where possible, my wife receives income and I do not. For example, if I buy some shares and subsequently want to sell them for a profit, it would seem smart to give them to my wife, and have her sell them, paying a lower tax rate on the capital gain. Would you agree?
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 3:44 PM on April 30, 2012


The regs I linked to seem to suggest that would be OK: "When married taxpayers file a joint federal income tax return and elect to file separate Iowa returns or separately on the combined return form, the spouses must allocate capital gains and losses between them on the basis of the ownership of the assets that were sold or exchanged. That is, the spouses must allocate the capital gains and losses between them on the separate Iowa returns as the capital gains and losses would have been allocated if the taxpayers had filed separate federal returns instead of a joint federal return."
posted by Mr.Know-it-some at 5:50 PM on April 30, 2012 [1 favorite]


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