Single File, Please

By Jennifer Hatch

Originally published on Advocate.com January 05 2009 12:00 AM ET

Sometimes it pays to be single in the eyes of the IRS.

It’s almost tax time, and soon you’ll be filing dreaded IRS forms. As most of you know, you’ll have to file as “single,” even if you’re partnered, in a civil union, or legally married in your state. While IRS rules generally favor federally recognized marriages, your single legal status may yield some financial advantages come April 15. Here are a few places to find those hidden benefits.

A Time to Harvest Here’s a recipe for making some lemonade out of the lemons the recession has delivered. It’s called “tax loss harvesting.” Let’s take your brokerage account, for example. If you sell a stock that’s lost money and don’t repurchase it for at least 30 days, you can claim the loss as a tax deduction. If you’re afraid of missing the rebound in this stock, you can buy a similar (but not “substantially identical”) stock in the meantime. These investment losses can be used to offset investment gains. Plus you can apply up to $3,000 in losses against your regular income. If you have more losses than that, you can carry over this credit into future tax years. In same-sex couples, each partner can deduct up to $3,000 in losses directly against their income, while a federally recognized married couple can deduct only $3,000 total!

Roth ’n’ Roll After making your 401(k) contributions at work, one of the best places to squirrel away a few more nuts for retirement is a Roth IRA. Unlike all other flavors of retirement accounts, which are taxed upon withdrawal, investments in a Roth are made with after-tax funds and grow completely tax-free. There is also a little-known benefit for same-sex couples. Whereas married couples are allowed to invest in a Roth only if their combined income is less than $169,000, partners in a same-sex couple can each earn up to $116,000 and still qualify.

What’s Mine Is YoursCouples who own joint assets, like a house or brokerage account, can shift back and forth between who declares the tax gains (or losses) and who takes the tax deductions. Of course, it helps if both partners use the same gay-savvy tax preparer. Shifting between partners for tax purposes can be very advantageous if the partners are in different tax brackets, and it’s perfectly kosher as long as the joint owners don’t double-dip by taking the same deduction. (Depending on whose Social Security number is listed on the 1099, the tax preparer may need to note the other partner’s Social Security number on the return for the IRS’s reference.)