8 Important Tax Tips for Same-Sex Couples
While the political issue of same-sex marriage is still being debated, the federal ruling making the Defense of Marriage Act unconstitutional means that for tax purposes all marriages are equal. Even if you reside in one of the 14 states that have yet to make same-sex marriage legal, filing taxes is now a different procedure for gay married couples.
Same-sex spouses are not guaranteed to benefit by being able to file jointly now. In some cases, couples in which both partners are high earners might see a penalty for filing jointly, while newer laws could impact those that are self-employed. Specific tax scenarios can be complex, and same-sex couples should consider consulting with a tax professional for guidance, especially if they live in a state that does not recognize same-sex marriage.
Here are some tips and considerations when it comes to filing taxes for same-sex couples this year.
1. Joint Return Status
Arguably the most significant impact to same-sex couples since DOMA was repealed is that they can now file joint tax returns. Look at the difference between filing individually and jointly for 2015, based on a yearly income of $100,000: The individual return subjects a person to $21,071.25 in taxes, while the joint filer only pays $16,587.50. That's a difference of thousands.
2. Tax-Free Employee Benefits
Same-sex couples can now enjoy the benefits of tax-free, employer-sponsored benefit plans. If one spouse works for a company that offers certain benefits like health care plans or flexible spending accounts, the other spouse could now be eligible for coverage, thus eliminating the need for same-sex couples to have multiple benefit plans.
3. Amending Past Returns
If a couple was married but filing individually in 2010, 2011 or 2012, they should consider going back and amending those past tax returns to read as joint filings instead. As mentioned before, the amount of taxes owed can differ greatly from individual to joint returns, and could translate into a significant refund. Couples interested in doing this should file the amendment before April 15 if they want to include these statements.
4. Tax-Free Gifts
Married same-sex couples can now give unlimited tax-free gifts to their spouse. While this seems like it would only impact high earners, it also means that products like IRAs can be given to a spouse without incurring any tax penalty.
5. Offsetting Capital Gains and Losses
The ability to offset capital gains with losses now includes same-sex couples. If one spouse realizes a capital gain and the other a loss, they can offset the taxes by combining the two transactions. This effectively doubles the number of investment tax possibilities.
6. Home Sale Exclusion
Single taxpayers can exclude up to $250,000 in taxes from the sale of a primary residence, while couples can exclude up to $500,000.
7. Deductible Alimony
Payments made to a spouse based on a court order such as alimony may now be tax-deductible for same-sex spouses instead of being treated as a taxable gift.
8. Social Security Benefits
The Social Security Administration currently offers benefits for same-sex spouses only in the states that allow same-sex marriage. However, when and if the state laws change, this standard will likely be retroactively applied, meaning couples that claimed Social Security benefits that weren't paid out before will be compensated for them.