Tax Tips for LGBTQ Couples

Tax Tips for LGBTQ Couples

The very idea of filing tax returns can make April 15 a day of dread for millions of American wage earners. Not only are tax forms and their instructions ever-changing, confusing, and sometimes even contradictory, lots of folks also have a fundamental fear of all things related to the Internal Revenue Service (IRS).

As intimidating as April 15^th – TAX DAY – is to the average American, the day is worse for LGBTQ couples whose marriages, civil unions, and domestic partnerships are now legal according to the federal government but – unless they live in a marriage equality state or a state that recognizes LGBTQ marriages performed in other states.

Registered domestic partners and same sex married couples can find themselves at a tax crossroads come filing time. The difference between federal and state recognition of same-sex marriage and domestic partnerships can create challenges that married heterosexual couples do not face.

The good news is that more and more states allow married gay and lesbian couples to file joint state income tax returns. Even better, the federal government now allows ALL married LGBTQ couples to file joint federal income tax returns.

Here is an easy guide to help you figure out what you need to do come April 15, regardless of where you live and what your marital status is:

Married and living together in a state that recognizes your marriage – You are required to file as married for both federal and state returns.
Married and not domiciled in a state that recognizes your marriage – You are required to file as married for federal but must file as single for your state return.
Recognized domestic partners in the state – You must file as single for federal returns but must file as married on your state return.
Unrecognized domestic partners in the state (in other words, you are not legally married) – You must file as single for both federal and state returns.

Federal laws come into play when filing your state tax returns. Most states base their joint return computations on the figures from your joint federal return. This means that while married couples only have to file two returns – one for federal and one for state – generally, unmarried LGBTQ partners must complete a total of four tax returns.

First, each partner must complete an individual federal tax return to file with the IRS.
Second, the couple must create a mock or dummy joint federal return combining income, adjustments, deductions and credits.
Finally, they use that mock return as the jumping off point to prepare a joint state tax return.

So, what should you do? Well, if you aren’t allowed to file a joint state return, but are required to file the equivalent of a married-filing-jointly or married-filing-separately return on your federal return, the first step is to be sure you understand the rules in your state. The best thing is to use tax preparation software like TurboTax, which will greatly simplify the process of completing your mock federal return. We know for a fact that TurboTax has special instructions to help LGBTQ partners, whether you are in a civil union, registered or unregistered domestic partnership or legally married. You can buy TurboTax on Amazon.com and if you click this link to do so, Rainbow Law will get 5% – 7% of the proceeds and it won’t cost you a single penny more.