Married Gay Couples "Refuse to Lie" on Tax Forms

A growing number of same-sex married couples are refusing to call themselves "single" on their federal tax returns this tax season. The taxpayers are no longer willing to comply with the federal law that does not recognize their marriages, and have vowed to pay the IRS when they law changes.

NYTimes.com reports:

Same-sex couples who have married, or who have a legal status equivalent to marriage in certain states, must still file separate federal returns because the government — and therefore the Internal Revenue Service — defines marriage as a legal union between a man and a woman.

Using that definition, federal tax returns ask taxpayers to check one of five options under their filing status: single, married filing jointly, married filing separately, head of household or qualifying widow(er) with dependent child. Married same-sex partners typically file their own federal returns either as single or, if they qualify, as head of household, which has more favorable rates than the single filing status.

But many same-sex couples contend that filing as single amounts to lying about their marriage status, and that’s the message behind the “Refuse to Lie” campaign created by gay activists, which is timed to coincide with tax season.

“More people are refusing to lie on those forms, even though the government is telling them to,” said Nadine Smith, executive director of the gay, lesbian, bisexual and transgender advocacy group Equality Florida, who plans on filing a joint return with her wife, Andrea. “It would be both dishonest and deeply humiliating to now disavow each other or our marriage and declare ourselves single on our tax form.”

Continued at NYTimes.com…

Welcome to the Tax Blogosphere: Pat Cain's Same Sex Tax Law Blog

Santa Clara Law professor Patricia A. Cain has launched a new blog, the Same Sex Tax Law Blog. This should be an extremely valuable resource for all the same-sex couples who are looking for some advocacy and equity in our tax system. Check out her inaugural post courtesy of The Tax Prof Blog.

The Internal Revenue Code provides numerous special provisions for spouses. At the current time none of these provisions applies to same-sex couples. Even legally married same-sex couples, residing in states where their marriages are recognized, cannot claim spousal status under the federal tax laws. The Defense of Marriage Act (DOMA) prohibits the federal government from recognizing same-sex couples as spouses. Until DOMA is either repealed or found unconstitutional, the tax treatment of many same-sex couples is a subject of much confusion and contention.

I have been thinking about these issues for a long time and am creating this blog to enable me to share those thoughts more broadly with tax practitioners who are interested in this topic. As issues arise or as questions occur to me, I will write individual blog posts on each issue or question. Short "white papers" dealing with specific topics in more detail will be linked to the blog. And important IRS rulings and cases that affect tax questions for same-sex couples will also be linked.

Welcome to the tax blogosphere Patricia!

Lambda Legal Releases Tax Guide Following IRS Acknowledgment of California's Same-Sex Couples

Last week Lambda Legal published a helpful guide to help taxpayers and tax preparers in California with a recent IRS tax law change that applies to thousands of legally married same-sex couples, as well as registered domestic partners in California. Check out the following snippet from their press release, or click here for the full text.

The change, announced earlier this year by the Internal Revenue Service, applies to California's registered domestic partners (RDPs) and also may apply to the state's estimated 18,000 legally married same-sex couples, as well as registered domestic partners in Nevada and Washington. In a change from the approach taken by the Bush Administration, the IRS will now recognize the jointly owned community property income earned by California RDPs, the same way it long has done for different-sex married couples who file separate federal income tax returns. Recognition of "community income" means couples each will report half of their combined income on their separate returns -- called "income-splitting" -- which can mean big savings for couples with wide disparities in income.

"This change represents one more good step in the direction of treating same-sex couples who have formalized their relationship under state law the same as married different-sex couples are treated," said Jennifer C. Pizer, National Marriage Project Director for Lambda Legal. "The problem addressed by this new policy highlights what marriage discrimination means – an endless stream of sometimes small inequalities that often end up costing same-sex couples real dollars as well as their dignity. But let's be clear – while this is welcome progress towards our community's goal of full legal equality for same-sex couples, the IRS still won't allow us to file a joint tax return or otherwise respect our family relationships, and federal law as a whole still discriminates against us in countless serious ways. This is a small step, but it's a good one."

The document is entitled "The IRS Applies 'Income-Splitting' Community Property Treatment to California's Registered Domestic Partners: Preliminary Answers to Some Frequently Asked Questions." It was prepared by Pizer, Lambda Legal Staff Attorney Peter C. Renn and tax attorneys at the prestigious Irell & Manella law firm in Los Angeles, with consultation by Wendy E. Hartmann of the Bennett & Erdman law firm, also in Los Angeles, who specializes in estate planning for same-sex couples.

To download Lambda Legal's FAQ explaining the new IRS position about registered domestic partners' community property rights, please go to: www.lambdalegal.org/ttp-community-property.

Obama extends benefits of gay federal workers

In a move that goes beyond the memo President Obama signed last June which permitted same-sex partners to use the government’s long term care insurance and other fringe benefits, he extended the range of benefits to same-sex partners of eligible federal workers to include access to medical treatment, relocation assistance, credit unions, and fitness centers. These benefits do not cover uniformed members of the military, however, but the House is working on a repeal of the “Don’t Ask Don’t Tell” law, so there is a chance they will cover same-sex couples of military personnel next year.

This extension of benefits comes in perfect alignment each year with June now being the Lesbian, Gay, Bisexual, and Transgendered Pride Month declared by Obama. Obama also ordered federal agencies last year to identify other benefits that could be offered to same-sex partners. Unfortunately, he is prevented by federal law from providing full federal benefits to same sex-partners. Read the full article here.

Questions for the Tax Lady: March 1st, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: If my college student wants to claim himself as a dependent when he files his return can I still claim his as a dependent on my return?

No. If you want to claim your son as a dependent and take an exemption for him on your return then he cannot claim a personal exemption for himself on his IRS tax return. Instead, he will need to check the box on his return indicating that someone else claimed him as a dependent.

Question #2: What should I do if I realize I made a mistake on my tax return that I have already e-filed?

If you make a mistake on your return then you will most likely need to file an amended return with the IRS. You should use IRS Form 1040X, and should expect 8 to 12 weeks for the IRS to process the amended return. For more information, check out this page on IRS.gov.

Taxes 101 For Domestic Parents & Same-Sex Couples

As Benjamin Franklin famously said, "nothing in this world is sure but death and taxes". Unfortunately, this is more than true for domestic parents and same-sex couples all across the country. What many people do not realize is that there are significant tax disadvantages for non-married couples that nearly all gay couples face every year. Even though dozens of states and over 50% of Fortune 500 companies offer domestic couple benefits, the federal government does not offer any.

This tax season I am reaching out to LGBT Americans by providing insightful tax tips and advice. A few weeks ago I posted an entry with generic tax tips for members of the LGBT community, and to follow up I decided to take a closer look at the tax and financial issues faced by domestic partners and same sex couples in this country.

Civil Marriages vs. Legal Documents

To understand the importance of tax equality, I think it is first important to understand the common misconceptions surrounding same-sex couples and taxes. You have probably heard before that civil marriages and same-sex marriage are not even necessary, that you can have any lawyer draw up the necessary documents. However, this is false. While it is true you can have a power of attorney appointed for certain asset-sharing and finances, it does not assure your partner access to your full wealth like a marriage would. Additionally, we all know lawyer fees are not cheap. In fact, it can cost a same sex couple thousands of dollars in legal fees to get similar financial rights as those awarded by a marriage. While a marriage license on the other hand, usually costs under about $50.

Taxes for Same-Sex Couples with Children

Perhaps the biggest tax inequality concerning the LGBT community affects couples who have children. Since the federal government does not recognize same sex marriages, couples who have children, or adopt, do not always qualify for the benefits most married couples would. Due to this large disadvantage, many same-sex couples with children can only take advantage of tax benefits for single parents.

Can Gay Marriage Save the Economy?

M.V. Lee Badgett, an economist at the University of Massachusetts’ Institute for Gay and Lesbian Strategic Studies did a study that found "...over the next three years about 32,200 same-sex couples would travel from other states to marry in Massachusetts, which became the first U.S. state to legalize gay marriage in 2004." All of these couples will be spending their weddings, and money, in Massachusetts, and will greatly help stimulate the state’s economy.

According to studies the U.S. gay community spends a whopping $174 billion annually within the country, and just imagine how high that number would be if those couples were allowed to wed. With that much money being spent you would think the federal government would want a piece of the pie. Although the US economy may not be saved by gay marriage's legalization, it could certainly help.

Social Security Tax Disadvantage

The LGBT community, like everyone else, must pay their social security taxes every tax season. The difference is, no matter how many years they have been with their partner, they cannot take spousal benefits or survivors’ benefits. Reports from the census 2000 found "when a gay, lesbian, or bisexual senior dies, his or her surviving partner faces a financial loss that can amount to tens of thousands of dollars.”

LGBT Real Estate Taxes

Another financial difficulty same sex couples face has to do with the transfer or property between one another. An article by the Advocate Online found that "when someone puts his or her same-sex partner on the title to a home, it often constitutes a transfer of 50% of the value of the home -- as if the two were strangers -- and is taxed accordingly. Different-sex married couples do not pay this tax. Inheritance taxes apply when a taxpayer dies and leaves assets to another person. Different-sex spouses receive a complete exemption from such inheritance taxes, but same-sex partners do not. Because thresholds for state inheritance taxes are much lower than the federal threshold, inheriting the couple’s common home (or even the half of it that belonged to the deceased partner) can trigger inheritance tax."

Connecticut and Massachusetts Residents

Since these are the only two states where same-sex marriages are recognized, different tax incentives apply to same-sex couples there. In these two states, married same-sex couples can claim all marriage tax incentives, on their state returns. However, on their federal returns, since same-sex marriage is not federally recognized, same-sex couples must file separately.

Top 9 Tax Tips for the LGBT Community

Taxes have become a major financial issue for members of the LGBT community over the years. 11 million unmarried couples living in this country are missing out on the over 1,100 federal laws benefiting married couples. For this reason, many couples around the country get stressed every tax season with the task of saving on their taxes, without the benefits of federally recognized relationships.

Last month, my law firm joined the Sacramento Rainbow Chamber of Commerce. Throughout tax season, both the Roni Deutch Tax Center® and my law firm are reaching out to members of the LGBT community who need help with taxes. To kick-start our efforts, I have compiled the following 9 tax tips for members of the LGBT community.

1. Mortgages

When it comes to mortgages, the best way to save money on your taxes is to plan in advance which person should take the mortgage out. If you are making $45,000 a year and your partner is making $150,000, it makes more sense for your partner to take out the mortgage. This is because the higher income-earning partner can then claim the mortgage interest deduction over the years, and save more due to being in a higher tax bracket.

2. LGBT Friendly Help

Ask friends, family, and community members if they know of a tax professional that specializes in LGBT taxes. When it comes to taxes for unmarried couples, you can use all the advice you can get! Most tax professionals will be able to help you to some extent, but having a specialist in your area will ensures you are doing all you can to make your taxes as low as possible. It also improves your chances of taking advantage of any benefit you do get.

3. Gift Tax Exclusion

A married couple has the great benefit of being able to give gifts to each other without having to pay gift or estate taxes. Unfortunately, couples within the LGBT community cannot do the same. There is however, the annual gift tax exclusion, which when used properly, can make up for some of this injustice. The annual gift tax exclusion allows you to gift $13,000 worth of assets without paying taxes on them.

4. Charity Contributions

Charitable contributions can greatly help you reduce your tax liability. Much like the mortgage interest, you are going to want the partner with the highest income making your charitable contributions—and getting to claim the resulting deduction.

5. Be Prepared for Anything

When living with a partner that you cannot legally marry, it is important that you are both vigilante when it comes to your finances. No one wants to think it, but if your relationship ends, you are not protected the same way as a married couple is for purposes of dividing assets. If there is no agreement governing the relationship, asset ownership is pretty much going to come down to who bought or funded what. This may not seem fair, as you may have made purchases based upon who benefited most, taxes-wise. When you begin building up many valuable assets, hiring a lawyer to draw up documents is smart. Consider entering a cohabitation agreement to govern your finances during the relationship and providing the framework for splitting assets if your relationship goes sour.

6. Asset Shifting

You should also consider moving assets between you and your spouse to save on interest. Since you have the lower income ($45,000), you will want to shift more income-earning assets towards yourself. This way, you will be taxed at a lower rate on the income earned than your partner ($150,000) would. The ability to asset shift is actually a huge benefit when compared to married couples, who cannot asset shift if filing jointly.

7. Inheritance Taxes

If you and your partner are registered civil partners and your partner passes away, you do not have to pay inheritance taxes at all. However, if your state does not recognize registered civil partners, your partner may, in fact, be subject to estate taxes before the bequest.

8. Separate Accounts

Separate accounts will simplify financial management for you and your partner. You may also consider three accounts—one account for yourself, one for your partner, and one joint account. Use your separate accounts to pay individual bills and taxes from. Also, use the separate accounts to deposit your income into. Then, each of you can fund the joint account to pay shared expenses (e.g. groceries, trips, etc.).

9. Capital Gains

If you and your partner are registered domestic partners, then you can give assets to your civil partner and not pay any capital gains taxes whatsoever. Along with inheritance taxes, this is one of the few big tax advantages civil partners get over unmarried heterosexual couples.