Tax laws weren’t written with LGBT families in mind, but there are ways to make them work for you
DAVID TAFFET | Staff Writer
A new tax ruling in California that appears to be a first step toward federal recognition of same-sex marriage will actually cost gay and lesbian couples there more money, according to Jon Chester of Sterling Bookkeeping and Tax Service.
In that ruling, the IRS said that registered domestic partners in that state must file as married filing separately.
“Married filing separately is the worst way to file a return,” Chester said. “We’re going to recognize you, but we’re going to have you file in the worst way a married couple can file.”
Married filing jointly, he said, usually saves the most money and that filing is something same-sex couples cannot do on their federal taxes.
The so-called marriage penalty has been eliminated because a married couple gets to deduct twice the amount of a single person.
“But married tax brackets are much wider and save,” he said, so married couples filing jointly enjoy a tax advantage.
Chester had some other tips for same-sex couples in filing their returns.
He said that to take anything other than a standard deduction of $5,400, you must itemize.
Those deductions include property tax, charitable donations and medical expenses.
Chester said that if you support someone, you could take a deduction for that person.
Married couples who are recognized by the federal government regularly take deductions for dependents. He said gay people often do not think of that.
The person might be a child or a domestic partner. Chester suggested deducting for a parent that you support, even if that person doesn’t live with you. A parent in assisted living whose monthly bills you pay, for example, qualifies as a dependent.
He said it’s usually better for the partner making less money to claim any investment income and for the partner making more money to take any losses. The amounts can also be allocated proportionally, as long as no more than the total is claimed between the couple.
Ron Allen, a CPA who used to work for the Internal Revenue Service, said that when a same-sex couple is sharing ownership and deductions on property, do three things to make the tax return audit-proof. Make sure both names are on the deed and on the mortgage and make payments from a joint account.
He said that for an account to be considered joint for tax purposes, both partners should make deposits into the account during the year. He suggested that even couples that kept their finances separate should make common household payments from a joint account.
Allen said that tax laws were not written with same-sex families in mind, but we must fit the laws to work for our families.
For instance, Allen asked, who deducts a dependent child when Texas doesn’t recognize a second parent adoption? He said that he has seen a number of cases where the adoptive parent stays at home and the non-adoptive parent earns most of the household income.
The non-adoptive parent may take deductions for the partner and child but will bear an extra burden of proof that married couples don’t need.
Allen said that when he went into business, he saw same-sex couples that used his practice because it was a safe place to reveal their relationship status. Now, he said, many of his clients come to him because tax preparers outside the community don’t know what to do with same-sex families.
Allen said that CPAs now are included in confidentiality rules. If one partner brings him tax returns for both members of the couple, he legally cannot answer any questions about the partner’s returns unless he has a power of attorney or a signed document.
“It’s just another case of us having to do something special,” he said. “A husband and wife don’t have to do these things.”
Couples dealing with issues of joint home ownership or other joint assets, adoption and disability and dependency issues should see a CPA who is experienced in handling these issues for the LGBT community, Allen said.
This article appeared in the Dallas Voice print edition March 25, 2011.