Same-sex couples in California are facing both a simpler and more complex tax landscape this year, as they have the option to file federal income tax returns jointly for the first time and must choose whether to amend previous years filings as well. For many couples this will require an extensive examination of past years finances and deductions to determine the most advantageous approach, along with a look forward to start planning for the new tax landscape.
These changes have come about following last year’s Supreme Court decision striking down a law that prevented the federal government from recognizing state-sanctioned same-sex marriages. The case specifically dealt with tax issues and as a result the IRS was one of the first government agencies to announce a plan to comply with the ruling, which includes allowing joint filing and amended tax returns going back to 2010.
Joint filing and recognized status under federal tax law comes along with some other advantages, such as being able to deduct the money spent on a spouse’s health insurance plan so that it is not taxed as income. However, with all of these nuances and newly available deductions, it is crucial to pay close attention to the rules and not overstep the boundaries. Getting too aggressive with deductions and exemptions can sometimes trigger a tax audit.
There is also the tricky situation of couples who were married in California but who live in a state where same-sex marriages are not recognized. These couples will need to prepare and file their federal income tax returns separately from their state returns, since many of the deductions and rules that apply to married couples will not be available on the state level.
Source: New York Times, “Victory, and Tax Changes, for Same-Sex Couples,” Charles Delafuente, Feb. 7, 2014.