Thanks to the Supreme Court ruling that state bans on same-sex marriages are unconstitutional, this coming tax year will be the first year that Gay and Lesbian couples can file jointly as married couples.
So what does that mean for us as tax preparers with same-sex couples who decide to tie the knot or who may have but live in a state that does not acknowledge the union as marriage? Here are a few things to consider.
Filing State and Federal Returns will be simpler
Before the Supreme Court struck down DOMA, if a same-sex couple got married out-of-state, they could get the federal benefits of marriage but their home state could still deny them the benefits of marriage under state law. This meant that while they could file a joint federal return, they could not file a joint state return.
This coming tax season, married, same-sex couples are able to file jointly for both federal and state returns. Filing jointly typically gives married couples a lower tax liability than filing two individual returns, although the couple should always compare filing jointly to filing separately.
One thing to note: Civil Unions and Domestic Partnerships are not treated as marriages for federal tax purposes according to the IRS.
Keep in mind, the IRS considers you married for the entire year if you are married by December 31st. This means tax preparers will need to look at the marriage dates of their same-sex clients to determine whether there is a need or benefit to filing amended state returns using either joint or married filing separate status (or head of household status if they qualify).
Note that this applies retroactively to open year tax returns. If you have clients who were married out-of-state, they should file for state refunds for past years. Going forward, same-sex couples should consider filing joint returns.
For returns filed on or before Sept. 15, 2013, same-sex married couples are not required to file an amended return to reflect married status. However, it might result in a tax refund so consulting with your clients about this option would be a good idea.
Another change that should be discussed with your clients is their ability give unlimited gifts to their spouse without worrying about federal or state gift taxes. Previously, this law did not apply to same-sex couples. This means one partner will no longer become stuck with a federal gift tax bill when the couple purchases a home together.
Estate Tax Exemptions
Same-sex couples also no longer have to worry about state estate taxes at the death of the first spouse. They can now have the ability to pass on property to one another during their lives without incurring gift taxes.
Social Security Benefit Claiming Strategies
Same-sex couples also have the ability to perform the same Social Security benefit claiming strategies as opposite sex couples (i.e. Claim Twice, File and Suspend, or Restricting an Application).
Same-sex partners now have the ability to take advantage of spousal benefits offered by their spouses’ employer: employer-sponsored health-care coverage, access to lower-cost life insurance, etc. This is different than domestic partner benefits offered by some employers as domestic partner benefits are taxed as income to the employee.
The laws under the Family and Medical Leave Act (FMLA) also apply now to same-sex married couples.
Essentially, same-sex couples and opposite-sex couples are now equal in the eyes of the IRS so the same tax guidelines apply for both types of marriages. Because this is the first year of marriage equality, it will be important to talk to your clients about filing strategies and amending returns as well as other important strategies you would normally counsel married clients on.
If you’d like to get the full run down of the tax implications of Same-Sex Marriages, consider enrolling in our Tax Benefits and Concerns for Same-Sex Married Couples, available for registration this Winter.
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5 Changes to the Tax Code You Should Know About
Why Tax Preparers Need to Be Proactive With Schedule C Clients