Jointly or Separately: How Should Married Same-Sex Couples File Taxes?
With tax filing just around the corner, many new same-sex couples are asking whether or not they should take advantage of simplified joint filing or file separately, as they did before marriage. While it may seem easier, filing jointly could actually result in higher taxes! It’s best to examine your circumstances and then consult a tax professional – because as with all tax issues, the answer is: It depends.
Understanding the Law
The Supreme Court ruled on June 26, 2015, that same-sex couples could legally marry throughout the United States. On August 29th of that year, the Treasury Department and the Internal Revenue Service (IRS) declared that same-sex couples would be recognized as married by the Federal government for tax purposes – regardless of where they live. With this change in the US tax code, married same-sex couples could now choose whether they wanted to file their taxes jointly or separately – just like any heterosexual married couple.
Keep in mind, though, that not much has changed since that ruling. Only married couples are currently recognized by the IRS; civil unions, registered domestic partnerships, and other state-created relationships do not qualify as “married.”
When Filing Jointly Could Help
Filing taxes jointly could be beneficial to many same-sex married couples. According to Investopedia, there are two major categories of couples that could benefit most from filing their income taxes jointly:
- Couples where each spouse earns relatively the same amount – While averaging similar numbers has no significant effect on your adjusted gross income, it could help you obtain more of the Child Tax Credit. In addition, other credits – like the Lifetime Learning tax credit – can only be utilized when married couples file jointly.
- Couples in which one partner earns significantly more than the other – When you average a larger income with a smaller one, you could potentially fall into a lower tax bracket than you would filing separately. A lower bracket means lower tax rates in our progressive tax system – and that equals more money in your pocket.
It’s important to note that another benefit of filing jointly is that you get to maintain some more favorable IRA tax breaks. If you file separately, you could significantly reduce your adjusted gross income threshold for both Roth IRA contributions and deductible Traditional IRA contributions.
When Filing Separately Could Be a Good Idea
If you recently got married and have never heard of the “Marriage Tax Penalty,” now is a good time to do some research on it. The IRS recently augmented the marriage penalty by allowing non-married cohabitants to each file the maximum mortgage interest deduction – essentially doubling the amount. There’s nothing you can do about that now if you’ve already tied the knot, but there are some other penalties you could still avoid by filing your taxes separately.
Consider if you have:
- Two high-income earners. Two earners with high salaries could bump each other into a higher tax bracket. Filing separately could avoid this consequence.
- Two low-income earners: By adding incomes in a joint filing, you could lose out on your Earned Income Tax
- One spouse with substantial medical bills: Based on how medical expenses are calculated, it could be advantageous for you and your partner to file separately to maximize your deduction in this area.
Finding the Tax Answer that is Right for You
Taxes are incredibly complicated and confusing. You may want to consider hiring a certified tax professional to help you determine which filing scenario is best for you and your financial situation.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. This information is not intended to be a substitute for specific, individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management, we have a long history of working with the LGBT community. Among the many services we offer are financial planning and estate planning strategies for gay and lesbian couples. Financial planning is an important part of preparing for the future; contact us today to get started: www.partnershipwm.com.