No matter which side of the debate you fell at the time, there’s no denying all eyes were on New York when lawmakers lifted the ban on same-sex marriage in July.
Just one month later, the New York Post reported gay marriages made up one in four new nuptials in NYC, with city clerks pushing papers for an average 335 marriage licence applications per day.
Now that the wedding bells have faded, these couples are heading into their first tax season with a whole host of new complications.
For one, same-sex marriage is still not legally recognised under federal law, which means even though Neil Patrick Harris and his beau will soon be married under New York state law, Uncle Sam will still classify them as single.
That means gay partners who’ve gotten hitched have to file jointly on their state returns and separately on federal income tax returns.
“It’s a mess,” says Gail Rosen, CPA. “It will be time consuming for any same-sex married couple to prepare their own taxes. Literally, the return has to be done two times.”
Because there are so many factors in play, many couples have to turn to accountants and their attorneys for help wading through the process.
“We can’t just go down to H&R Block and have them plug in our numbers,” says family law attorney David Pisarra. “You’re probably going to at least double, if not triple, the accountant’s time, because you’re adding one state return and two federal. And the accountant will probably spend more time working with a gay couple.”
That could add as much as $1,500 to $2,000 to your bill for tax planning services, he estimates.
Some of the stickier tax areas same-sex couples may find themselves facing are issues reporting capital losses and gains and charitable donations, especially if they’ve made them through a joint bank account.
“They need to be careful in terms of separating income and deductions,” says Ken Weissenberg, a partner at NYC accounting firm EisnerAmper. “Either spouse can pay expenses and deduct them on tax returns.”
It’s a smart idea, in this case, for the higher earner to claim things like mortgage payments and charitable deductions on his or her federal return, Pisarra advises. (See six signs you’re ready to move in together.)
“There’s an argument that you could (attribute) all of the mortgage to one party if you’re co-mingling funds, because the higher earner could probably take a bigger deduction and then bring their (taxable) income down,” he says.
Next, if a gay couple has adopted a child together in their homestate, the U.S. government will only recognise one legal parent, even if some states recognise both.
One bright side to that snag is a loophole in the IRS adoption tax credit for unmarried parents. Since same-sex couples aren’t officially married under federal law, they can technically claim the credit, which is reserved for unmarried parents who adopt.
But as we saw recently, the agency isn’t afraid to reject same-sex couples for the tax credit anyway.
In this case, a lesbian couple was turned down for the adoption credit, shedding some light on the hypocrisy behind some of government’s treatment of gay partners.
Tax season only gets trickier for same-sex divorcees.
It’d be perfectly fine for an ex-husband to fork over the deed to the house to his former wife without incurring any taxes. But since same-sex couples aren’t recognised, the home would technically classify as a “gift” subject to the federal gift tax. (See 8 things every couple should consider before setting up a joint bank account.)
Cover all your bases
There are hundreds of different scenarios we could run through that would complicate tax filing for same-sex couples – don’t even get us started on estate planning – which only undercuts how crucial it is for couples to pay close attention to their paperwork.
Whether you hire an accountant or tax attorney or stick it out on your own, Pissara says there’s one bright side all to the extra work: “Because we need higher quality and more sophisticated attorneys and accountants, we might end up with a lesser tax burden in the end.
Ask your friends and family for recommendations for both or hit up the this helpful site for gay-friendly businesses in your area.
In the end, “there are many financial advantages (to same-sex marriage) and the extra cost of preparing a tax return just reduces the benefits a little bit,” Rosen says. “Each couple has to determine it for themselves.”
Follow her tips for filing on your own:
“For federal purposes keep filing as you always have. Then for state purposes, take the two tax returns and combine all of the income and expense onto one return. If you are doing the tax preparation on your own, actually set up a different “client” to do this. So you have three different names you are filing, Person 1 (federal), Person 2 (federal) and Person 1+2 (combined for state).”