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Tax time is tough for same-sex couples

• Published February 20, 2009

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The ides of April are looming again, which of course means two things:

One, I need to start shopping for my sister's birthday present. (Time to get creative with recession-era gifts.)

And two, it's tax time.

For same-sex couples, this can be a headache. And extra paperwork.

Thankfully, Washingtonians don't have to file state income taxes, which removes some of the nightmares.

In other states, it's not as easy: California has required registered domestic partners to file jointly since 2007, but federal returns must be done individually.

There are similar situations in Massachusetts and Connecticut — the only two states where same-sex marriage is legal. Many couples end up filing three or four returns, depending on their situations.

Same-sex couples, of course, are not recognized by the federal government.

"No federal laws allow same-sex couples to file jointly," said Scott Wilson, co-owner of Wilson Tax and Accounting Service in Seattle.

Debra Neiman, co-author of "Marriage Without Matrimony: The Unmarried Couple's Guide to Financial Security" and a Massachusetts-based financial planner, reiterated that.

"The big nuance is that, in the eyes of the IRS, a (same-sex) couple are complete strangers," Neiman said. "They are not a legal entity."

That means same-sex couples have to file federal returns separately and as singles. But this is not necessarily a bad thing.

"There are some quirks and some things you can take advantage of," Neiman said.

While we are denied federal recognition of our relationships, that does open up some loopholes. "It's really a benefit to most of them to really file separately," Wilson said.

The first thing Neiman recommends doing is determining what tax bracket each member of the couple is in. That can help maximize deduction benefits.

"The one in the higher tax bracket may want to make the charitable donations or the financial planner fee, which is also deductible," Neiman said.

"We can actually use the numbers to our advantage to make sure they pay the least amount of money. There is really room for me to help them make a lot of choices, and it usually is a tax benefit at the end of the day," Wilson said.

While playing with the numbers can be advantageous to a couple, same-sex couples face many decisions.

Let's say, for example, a couple jointly owns a house. When the tax form arrives in the mail, it lists only the first person who is listed on the mortgage.

This might not be a big deal for an opposite-sex married couple.

Many couples file jointly, so it doesn't matter whose name is on the form, Neiman said.

"For same-sex couples, they have to ask, 'How do we allocate the mortgage deduction?' and it may not be as straightforward as 50-50," Neiman said. "They may not pay the mortgage 50-50, so you have to reflect the economic reality."

And what about the kids? Who claims them?

Both Neiman and Wilson said that is another choice for the parents to make. And again, the person in the higher tax bracket might be the one who claims the children to maximize the benefits.

"Usually, there is an agreement between the two of them on who claims the child," Wilson said. "I have one couple that are an attorney and a police officer, and the attorney makes more money so she claims the kids."

Neiman works with one couple who has twins — each parent claims a child, in that case.

In the end, what it comes down to is making the choices that benefit the individual or the couple the most.

And a GLBT-savvy financial planner can certainly help.

Now that I have my taxes done, I can focus on the other important pending deadline — my sister's birthday.

So, what should I make for her?

Ruth Schneider wants to use her tax refund to go on vacation. Suggestions? Contact her at rschneider@theolympian.com or call 360-704-6873.