Tax Planning Update for Same-Sex Couples

Feb 09, 2015

MoneyLife100 Since 2013, federal tax laws for married couples have applied to same-sex couples who were married in jurisdictions where same-sex marriage is legal, even if the couple lives in a jurisdiction that doesn’t recognize same-sex marriage. As of press time, same-sex marriage is legal in 36 states and the District of Columbia, including Pennsylvania. The Pennsylvania Institute of Certified Public Accountants addresses some of the tax-planning issues facing couples affected by these legal changes and offers timely advice. 

Make the Most of Deductions

This is good advice generally, but it takes on new importance for some legally married same-sex couples. This is because, like any married couple, they may face the “marriage penalty” that will hike their tax bill if both spouses earn about the same amount. If one spouse makes significantly more than the other, however, their joint tax bill may decline slightly after marriage. Couples who were married before the U.S. Supreme Court struck down the Defense of Marriage Act in 2013 may also want to consider amending eligible earlier returns if they are due a refund for those years. A CPA can help you understand your situation and make a plan with you to minimize your tax bill.

State Tax Issues

For couples who got married in a state where same-sex marriage is legal but who now live in a state that does not recognize it, tax time can be particularly complicated. They may find themselves filing one federal tax return as a married couple filing jointly and two separate state returns as individuals. For these couples, it’s important to understand the tax laws on same-sex marriage in their home state and how they may affect them.

Reconsider Estate Planning

The Supreme Court case that recognized same-sex marriage at the federal level was actually a tax case brought by a woman who had to pay hundreds of thousands of dollars in estate taxes when her spouse died, money she would not have owed if she had been part of a heterosexual married couple. Estate planning is an important consideration for any couple, and legally married same-sex couples should be aware of new opportunities on this front, particularly those who have accumulated valuable assets. Each spouse can now inherit an unlimited amount from the other tax free, like any other married couple.

Think about Home and Health

In planning your future together, it’s important to take into account some of the other advantages of marriage. For example, owning investments jointly as a married couple gets easier and reaping the benefits of homeownership is less complicated because couples can take the mortgage deduction together on a joint return instead of splitting it between two individual returns. They can also qualify together to take the home sale exclusion, which allows them to avoid taxes on up to $500,000 of gain on the sale of their principal residence. Other advantages include the potential to qualify for spousal health insurance and to avoid extra taxes for it. 

Consult Your Local CPA

Same-sex couples face new financial planning opportunities and potential complications. As you work to address them, remember that your local CPA can help. Turn to him or her with all your financial questions. To find a CPA by location or area of expertise, visit www.ineedacpa.org.
About PICPA

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.