Will include a few examples to show how complicated it can get.
One Iowa Tax Clinic 2012 UPDATED
De-Mystifying Same-Sex Tax Issues In Light of DOMA Jason T. Dinesen, E.A.
What is an Enrolled Agent?• I don’t work for the IRS!• Licensed by the Department of the Treasury• Have the same rights and privileges as attorneys and CPAs when it comes to dealing with the IRS• Only EAs are guaranteed to specialize in taxation
The Plan for Today’s Clinic• DOMA• The Federal Tax Return• The Iowa Tax Return
DOMA• The Federal Defense of Marriage Act of 1996 (DOMA) defines marriage as one man, one woman. Period. – Applies for all federal purposes, including taxes – But states are free to define marriage however they want
IT’S COMPLICATED• This complicates how same-sex couples file tax returns – Single or Head of Household on federal return – Married on state return – Must follow 2 different sets of law
A World Without DOMA• If DOMA didn’t exist, same-sex married couples would file tax returns as married – The tax code doesn’t even define marriage – IRS says marriage is determined at the state level
Today’s fundamental question is: given that DOMA restricts the federal government fromrecognizing same sex marriage butthe state recognizes it, how do you actually file your taxes?
CHOOSING A FILING STATUS• On a federal return, the only allowable filing statuses are – Single – Head of Household
Head of Household Filing Status• Must be unmarried or treated as unmarried• Must have paid more than 50% of the maintenance costs for the home of a qualifying person – A “qualifying person” generally means a child – “Maintenance of a home” means rent, mortgage payments, property taxes, food and utilities
Who Can Claim the Kids?• If both spouses are legally the child’s parents by blood, adoption or by being a step-parent, then the spouses can decide for themselves who claims which kids as dependents• If only one spouse is the child’s legal parent, then the legal parent is the only person who can claim the child – Even if the legal parent doesn’t claim the child
Can One Spouse Claim the Other as a Dependent?• Maybe – The spouse cannot be considered a qualifying child of someone else – Must live with you all year – Gross taxable income must be less than $3,800 – You must have provided more than ½ of your partner’s support for the year• Even if you can claim your partner as a dependent, you will not qualify for Head of Household filing status or for the Earned Income Credit unless you also have kids
• SINCE THE IOWA RETURN IS BASED ON THE FEDERAL RETURN, HOW DO WE FIGURE OUR STATE TAXES IF WE ARE MARRIED?
Mock Return• Same-sex married couples must prepare a “mock” joint federal return to use in preparing the state return. – The return is not filed – It is prepared as if you were married for federal purposes – Can be as simple as just combining your W-2 income … or it can get really, really complicated – And Iowa has issued no guidance as to what items they expect to be recalculated
Choosing an Iowa Filing Status• There are 3 to choose from: 1. Married Filing Jointly 2. Married Filing Separately on a Combined Return 3. Married Filing Separately on Separate Returns• Iowa has one income tax bracket, regardless of filing status• Married Filing Jointly is usually a bad filing status for dual-income couples
More About Iowa Married Filing Separately• On separate returns, spouses must SPLIT itemized deductions based on income – This is true with either of the “separate” statuses• The net end result is the same under either filing status• The difference between the two statuses involves liability for the tax return
Taxability of Health Insurance• You will be taxed on the value of benefits, such as health insurance, provided to a same- sex partner – But not if your spouse is your dependent• Iowa does not tax these benefits
Gift Tax• What is the Gift Tax? – Federal law allows an individual to give up to $13,000 to any one person without tax consequences. – Spouses can give unlimited amounts of gifts to each other with no gift tax consequences. • Because same-sex couples are not considered married, the $13,000 rule applies.
Gift Tax• What is a gift? – Property transfers, such as placing title to a house in your spouse’s name as a joint owner. • THE IRS IS CRACKING DOWN HARD ON THIS – REQUESTING PROPERTY RECORDS FROM STATES
Jason T. Dinesen, E. A. 515-778-8189 www.dinesentax.com firstname.lastname@example.org