California’s same-sex couples who are registered domestic partners or legally married face complicated new IRS rules as they do their 2010 tax returns, but they are rules which could benefit the couples’ finances significantly.
Many gay and lesbian couples are just learning of the changes, as they are in the midst of doing their 2010 taxes.
In brief, new IRS rules require registered domestic partners to split income from community property 50/50 on their federal returns. Community property includes salaries and wages.
But since the federal government does not recognize the legality of the relationships (because of the federal “defense of marriage act”), the couples must still file their federal returns separately.
It’s complicated and will cost LGBT filers more in accounting fees, since tax preparers must spend more time doing the returns. In addition, most couples will not be able to file electronically, since the paperwork is so cumbersome.
On the other hand, there are significant financial benefits to the change, says Palm Springs CPA Gregory D. Barton, who specializes in helping gay and lesbian couples deal with the new regulations.
“It means that registered domestic partners can now file a federal tax return and split income and deductions down community property lines,” Barton says.
“Which is great because what we’re seeing happen is that if one party makes a tremendous amount of money and the other one has hardly any income, you get to split the income down the middle, and so we’re seeing huge refunds.”
What’s more, couples can go back and file amended returns for 2007, 2008 and 2009, if the results would benefit them (it’s not mandatory to file such amended returns).
And there’s another benefit, especially for the many people who suffered losses in the stock market over the past three years.
“If you’re married filing jointly,” Barton says, and you have a loss like stocks, you could only deduct $3,000 per year. But now each party can deduct $3,000. So we’re doubling that.” Barton’s website is www.gregbartoncpa.com.
The new IRS rules affect registered LGBT couples in California, Nevada and the state of Washington, because of those states’ unique combination of community property laws and domestic partnerships.
Because of the confusion, the Lambda Legal Defense Fund has set up a website to address many of the questions involved. It can be found at www.lambdalegal.org/tax-rules.
The changes make it essential that registered lesbian and gay couples work with a tax preparer who is familiar with the new rules on “income splitting” and the special tax needs of the LGBT community.
That’s the best way to insure giving new meaning to the old phrase, “many happy returns.” ###