The Pros/Cons of Being Married, Filing Taxes Separately

It is not often the case that married couples file separately since the tax system favors joint tax returns, but there are some instances when doing your taxes separately will help a couple come out ahead.

Make no mistake about it, you will lose some tax benefits if you and your spouse file separately. One of these benefits is being able to deduct investment losses as one larger lump sum. If you have children, parents filing jointly are eligible for a Child and Dependent Care Credit, College Tuition Deduction, and Student Loan Interest Deduction, just to name a few.

Filing separately can come in handy, however, if you’re dealing with large medical expenses. Non-reimbursed medical expenses can’t be deducted unless they exceed 7.5% of your adjusted gross income. If both you and your spouse are working, those numbers could work against you.

Another potential advantage to filing individually comes if you or your spouse are in a particularly risky line of work. Any tax complications could then affect both of you, rather than just one, should things spiral out of control and the IRS come knocking.

There are numerous tax-preparation software programs available (many free of charge) that can help you break down any potential savings, or you can consult with a tax professional to discuss your personal situation and decide if filing separately is indeed better for both spouses. Do your homework and always do what is best for the entire family at the end of the day. You may also need to bring in a financial planner if you’re looking to keep money separate, since it could affect your long-term savings. Every situation is different, but getting several professional opinions usually costs nothing and is well worth the effort.

Paul Rubillo is the founder and CEO of Dividend.com.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

Moving headaches at St. Joe Co. …

Isn’t it funny how moving is always more expensive than you think it’s going to be?

So no doubt we can all sympathize with The St. Joe Co. (JOE), the timber company turned Florida Panhandle developer on a huge scale. Back in March, the company announced it would be moving its headquarters across the state to one of its own developments in northwestern Florida, from Jacksonville.

In an 8-K filing on March 17, the company estimated it would have at least $1.7 million in layoff expenses, and probably more once relocation and other costs were factored in. Now, according to an 8-K it filed late Wednesday, it thinks the total figure will be near $5 million before taxes, including

“relocation bonuses, temporary lodging expenses, resettlement expenses, tax payments, shipping and storage of household goods and closing costs for housing transactions. These estimates are based on significant assumptions, such as home values, and actual results could differ materially from these estimates.”

In other words, don’t hold your breath, folks — it could go up again.

What’s driving the cost? St. Joe doesn’t get too specific, but a look at that March 17 filing gives some clues — and juicy ones at that, tied to the company’s top executives.

A relocation agreement for Chairman and Chief Executive William Britton Greene, for example, sticks shareholders with the cost of maintaining his old home for 12 months (including mortgage payments, but not long-distance telephone charges), closing costs for selling his old home and buying a new one, moving up to three vehicles, and, of course, shipping, packing and up to six months storage for his household belongings. St. Joe will also reimburse Greene for as much as $150,000 if his old house sells for less than the average of two appraisals — or it might just buy the house from him at that average cost, instead. Plus, he gets his taxes paid on all of the above — and initiation fees to four or more golf and beach clubs (though the guy is on the hook for his own annual dues).

This for a company that trumpeted the “operating efficiencies” it captured back in 2007, by laying off some 15% of its workforce.

Greene’s litany of moving subsidies would seem to cover all the bases. But just in case, he also gets $100,000 to ”assist in defraying the incidental cost of relocation,” meaning everything from homeowner association dues, utility hookups, installation of TV aerials and auto registration to transport of pets, and “Tips, food and beverages provided to van line driver/crew.”

The tips and cold drinks are a nice touch — at least St. Joe is looking out for the little guy. We trust Greene will make sure to round up.

Image source: how_long_it_takes via Flickr

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A look at BMC Software’s time-based RSUs…

When Houston-based BMC Software, Inc. (BMC) filed its proxy June 17, we made a mental note to praise the company for what we think is a small step in the right direction:   The company said that while it will continue to pay the travel costs for executives’ spouses to attend “appropriate company events,” it will no longer gross up reimbursements to pay the taxes on that imputed income.

While that move will save the company a little money, a bigger disclosure jumped out at us that will surely cost the shareholders far more.

BMC awards two kinds of Restricted Stock Units (“RSUs”), some that are “time-based,” and some that are “performance-based.” The proxy states that the performance-based shares given to executives and other key employees vest in full only if BMC reaches pre-established performance targets and the recipient remains employed with the company.  The only executive who got performance-based RSUs in fiscal year 2010 was Hollie Castro, the SVP of Administration. However, those shares were given to Castro pursuant to the terms of her September 23, 2009 Employment Agreement.

BMC’s other RSUs are the time-based shares. The company describes those as follows:

“Time-based RSUs directly focus on retention while providing an opportunity for increased rewards as stockholder return increases. Typically, these awards vest over three years, assuming continued employment.”

BMC explained that the poor market conditions, when combined with the company’s lower share price (which was lower than the strike price on the previous two years’ stock options) meant that the prior awards “…had little to no perceived reward or retention value.” But rather than replace or exchange the awards, the company used time-based RSUs to “…ensure stability in the leadership team, particularly as our company has performed well during difficult economic conditions.” It then explained:

“We view time-based RSUs as a less volatile equity instrument which links an executive’s interest to stockholder interests while maintaining a strong retention component. Time-based RSUs also provide a clearer view at the time of grant of future value to be delivered. If the stock price decreases, the value diminishes thus creating a downside to performance. If the stock price increases due to performance delivery, the value increases further motivating executives.”

Last year, BMC’s board awarded CEO/President Robert Beauchamp $8.94 million in time-based RSUs.  Senior Vice President/CFO Stephen Solcher got almost $2.1 million.  Hollie Castro (and remember, she just joined the company in September, 2009) got nearly $1.8 million.  And four other NEOs (two of whom who have since left the company) got nearly $7.9 million, collectively. The proxy states that the numbers given represent the fair market value of the shares on the date of the grant.

Other than a few little purchases and one sizable acquisition (121,083 shares) by Beauchamp, most of the insiders’ recent trades reflect a lot of sales and dispositions of BMC’s stock.  Apparently the program helps to retain the executives, but whether or not they retain the company’s stock is a different question.

Image source: Jeff Kubina via Flickr

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