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Uncle Sam

Uncle Sam


Some tips on avoiding drama this tax season.

Ttax season is the most frustrating time of year for gay couples. W-2s, 1099s, 1040s, schedule A's and C's--it's difficult enough for married couples to figure out our tax code, let alone gay couples, who are forced to pay taxes to a government that doesn't recognize our relationships. Thanks to the Defense of Marriage Act, we can't file taxes jointly--and let's face it, most tax preparers and most software are just not capable of helping us out here.

One of the biggest ways we're screwed at tax time is how the feds consider the value of domestic-partner benefits. Although many companies now provide health insurance and long-term care, among other benefits, to the partners of gay and lesbian employees, guess what? You will be taxed on the value of these benefits. But your married straight buddy down the hall? He gets a free pass.

The cost of this inequity also affects businesses that, in addition to paying additional taxes, must also absorb administrative costs associated with record keeping and reporting this "imputed income," as the government calls it. That's why major companies like Citigroup, Corning, and Ernst & Young support the elimination of federal tax inequalities related to domestic- partner benefits. With their backing, the case for ending this inequity is even stronger.

But it's not all doom and gloom, of course. It may be a pain for you and your partner to file separate tax returns, but there can also be some tax advantages because of it. In fact, by not filing jointly, you may be handing over less of your hard-earned cash to the government. George Kresslein, a CPA and tax expert who frequently works with gay and lesbian couples, says filing separately may actually decrease your overall tax burden. "If you file taxes separately," he says, "your combined income is taxed at lower federal -- and, in most cases, state -- rates."

Let's assume you and your partner each have taxable incomes of $75,000 per year. If you were able to file jointly, your marginal tax bracket would be 28%. But filing separately? Your marginal tax bracket is 25% -- a savings of 3% in federal taxes. Sure, that's a pittance compared to the indignity of being second-class citizens, but it's definitely something to keep in mind as you structure your tax returns.

There may be other advantages too, depending on your situation. For example, if you increased the energy efficiency of your home last year and are eligible to claim energy credits, you and your partner might both be able to claim the full credits, doubling the savings you would get if you were married. By filing independently, you can also take interest deductions on up to two properties each -- one main residence and one vacation home--or four properties combined. A married couple filing jointly would only be able to deduct interest on two properties together.

To use these loopholes, it's imperative that you seek the help of a professional when you file your tax return, especially one who is aware of the unique issues facing gay couples. The only way to do that is to ask relevant questions: The adviser should have worked with other gay couples before and be aware of what needs to be done off the bat. Don't hesitate to ask for references from other gay couples the adviser has worked with -- and follow up on those references. If the adviser doesn't seem comfortable with or knowledgeable about your situation, keep looking.

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