First of all, it is such good news that same sex marriages are now legal in all fifty states. Not only is it a major civil rights victory, but it makes your tax filings so much easier, because same sex couples who marry are treated on an equal footing with heterosexual couples.
You may still have many questions, some simply having to do with marriage, but others having to do with things you have heard in the past about how same sex couples are treated differently. And, if you are not married, the answers to your questions will be different than if you are. It is always best to ask questions in advance rather than after the fact.
Here are some of the questions I’ve been getting: Is it true there is a marriage penalty? Should we file jointly or separately? Is separate the same as single? Who gets the interest deduction if we purchase a house together? I’m pregnant, what do we need to consider? We’re in the process of adopting a baby; how much will our adoption credit be? My partner’s employer is paying my health insurance; do we have to pay tax on it? We have a civil union in New Jersey; does that count as a marriage in New York? The answers, of course, depend on your individual circumstances.
For instance, if one partner owns your home and holds the mortgage on it, but the other partner pays the mortgage, both of you may lose the mortgage interest deduction if you are not married. When you are married, it won’t be an issue, since your joint information is reported on the same tax return.
Another example involves investment accounts. The 1099 form you get at the end of the year only allows for one social security number. As a result, for an unmarried couple who has chosen to split the income on their tax returns, the partner whose social security number is listed may get a letter stating that they haven’t reported all of their income. If you are filing a joint return, this isn’t an issue.
If you are planning to have children; you may want to explore some of the tax related issues in advance. If you are not married and you are planning a third-party adoption, you may both be entitled to an adoption credit, but you will have to plan carefully to determine who is allowed to claim the child as a tax dependent. If you are married, the dependency issue goes away, but you may not be able to claim the adoption credit if your spouse is your child’s biological parent. Expenses related to surrogacy are never eligible for the adoption credit.
Civil Unions: Civil Unions are not marriages. You cannot file a joint federal tax return, but if your state recognizes your civil union, you may have to file a joint return on the state level, so your tax return preparation will remain complicated. However, if you are in a state that recognizes common-law marriage, and you meet those requirements, you may be married without ever having gotten a marriage license and may be required to file joint federal returns. States that recognize common law marriages are: Alabama, Colorado., District of Columbia, Georgia, Idaho, Iowa, Kansas, Montana, New Hampshire, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Utah. Each state has different regulations, so if you live in any of these states, please check the specific laws that govern common law marriages.
Same sex couples are advised, as are all couples, to seek the advice of a knowledgeable accountant or income tax preparer as early as possible before making major life decisions so that they can position their financial lives to yield the best tax benefits.
Same sex couples living in New York who have questions regarding any tax issues are invited to call our Park Slope accounting office at 718-638-3338, or click here to schedule a consultation (preferably before tax season) with an income tax preparer to yield the best tax benefits.
Park Slope based Victoria Brush is an Enrolled Agent licensed to practice before the Internal Revenue Service