The Kurlander Program for The The Kurlander Program for GLBT Outreach and Engagement
LGBT Financial LGBT Financial Planning Andrea B. Feinberg, CPA Senior Manager, Tax Department g p April 29, 2012
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Andrea B Feinberg CPA Andrea B. Feinberg, CPA •
Senior tax manager at Gelman, Rosenberg & Freedman CPAs
•
30 years of f experience providing accounting services including preparation preparation and review of individual, corporate, partnership fiduciary partnership, fiduciary and estate tax returns
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Overview • • • • •
Filing Status Dependents Taxation of Domestic Partnership Benefits Adoption Credit p Allocation of Income and Expenses
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Fi i O t Fili St t Figuring Out Filing Status Tax Form for:
Ability to File a Joint Return:
Federal Government
Cannot
District of Columbia
Can – if both domestic partners were residents of DC at the end of the year
Maryland
Cannot – must use same status as federal return (Maryland Attorney General return (Maryland Attorney General’ss 2010 Opinion)
Virginia
Cannot
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Joint Returns Joint Returns States that allow same‐sex couples to file a joint return (married filing jointly or married filing ( i d fili j i l i d fili separately): • California
• New Jersey
• Connecticut
• New York
• Iowa
• Oregon
• Massachusetts
• Vermont
p • New Hampshire
LGBT Financial Planning GLOE’s LGBT Life Planning Series
H d fH Head of Household Test h ld T t Must meet the following conditions: g 1. Must not be married at end of year or spouse did not live in home during last six months of year 2. Must pay more than half of the cost of keeping up his/her home his/her home
LGBT Financial Planning GLOE’s LGBT Life Planning Series
H d fH Head of Household Test h ld T t (cont.) Must meet the following conditions: 3. The home must be a principal residence for more than h lf f th half of the year for a qualifying child or for a qualifying f lif i hild f lif i relative that is the taxpayer's dependent 4. Must be a US citizen or resident during the year ust be a US c t e o es de t du g t e yea
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Dependents • Qualifying child • Qualifying relative Qualifying relative
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Qualifying Child • The child must: The child must: 1. 2. 3. 4. 5 5. 6.
Be the taxpayer’s child Be under 19 or a full‐time student under 24 Live with taxpayer for more than half of year Not provide more than half of their support N t fil j i t t Not file a joint return Not be a qualifying child of another taxpayer g p y with higher priority under tie breaker rules
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Tie Breaker Rules • If If only only one individual is the biological parent, this person one individual is the biological parent, this person claims the child as the dependent • If both are parents, the parent with whom the child lived with longer claims with longer claims • Based upon number of nights • If both are parents and the child lived with them equally, the parent with the higher adjusted gross income claims the parent with the higher adjusted gross income claims • When no parent claims, the individual with the highest adjusted gross income claims
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Qualifying Relative 1. Dependent Dependent must be related to taxpayer OR live must be related to taxpayer OR live in the taxpayer's household for the entire year • Temporary absences are ignored if it is reasonable to assume the person will return to the household h ill h h h ld – Illness, education, business or military service
2. Dependent Dependent must have less than $3,700 in must have less than $3,700 in gross income • Gross income excludes social security benefits
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Qualifying Relative (cont.) 3 The 3. The taxpayer must have provided more than taxpayer must have provided more than 50% of the person's total support OR no one person provided over 50% of the total support but two or more people collectively support, but two or more people collectively did. • •
Support includes food, lodging, transportation and other necessities Support does not include life insurance premiums and scholarships received by full‐time students
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Taxation of Domestic Partnership Benefits i f i hi fi • Health care benefits H lth b fit • Flexible spending accounts • Group term life insurance lif i
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Health Care Benefits l hC fi • Employer‐provided health care benefits for a domestic partner are taxable to the employee • EXCEPT EXCEPT if the domestic partner is considered a if th d ti t i id d dependent for medical purposes
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Health Care Benefits Health Care Benefits • This This is true for federal purposes regardless of is true for federal purposes regardless of whether or not the state extends full marriage rights to same‐sex couples g p • Section 3 of the Defense of Marriage Act defines “spouse” for federal purposes as a person of the opposite sex who is a husband or wife
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Health Care Benefits Health Care Benefits • “Imputed Income” • Reportable on a Form W2 but not subject to the withholding rules • Fair market value of the coverage • Many employers compute this by taking the difference between the cost of single coverage and difference between the cost of single coverage and family or one dependent coverage
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Health Care Benefits Health Care Benefits • Medical dependent is basically the same as p y dependent for exemption purposes except the gross income limitation does not apply • Must provide half of the support and individual must live in household
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Flexible Spending Accounts Flexible Spending Accounts • Only permissible in the case of domestic partners who are dependents
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Group Term Life Group Term Life • C Cost of group term life coverage for a domestic t f t lif f d ti partner is not excludable from income as a de minimis fringe benefit de minimis fringe benefit
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Adoption Credit d i C di • Adopting a child together Ad ti hild t th • Adopting the child of your partner
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Adopting a Child Together Adopting a Child Together • No specific details for same‐sex couples • Refundable credit • Only used once • Can be split as mutually agreed upon Can be split as mutually agreed upon • Cannot claim more than allowed amount or what he or she spent • $13,360 per child $13 360 hild • Due to expire, but most likely will be reinstated
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Adopting the Child of Your Partner Adopting the Child of Your Partner • § 36C. Section 36C(d)(1)(C) • Cannot claim credit for expenses incurred in adopting the child of the taxpayer’ss the child of the taxpayer spouse • Does not apply to registered domestic partners • Domestic partners vs. spouses as defined by federal law defined by federal law
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Allocation of Income and Expenses Allocation of Income and Expenses • Allocation of Income • Absent community property laws, whoever earned it reports it • Be careful of IRS matching Be careful of IRS matching
• Allocation of Expenses • Can only deduct expenses that you actually paid for Can only deduct expenses that you actually paid for • Separate checking accounts j g • Allocation of joint checking accounts
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Allocation Expenses Allocation Expenses • Mortgage Interest g g • Must have a legal liability to pay • Be careful for IRS matching and report correctly on Schedule A • Limited to $1 million of indebtedness per home ($1.1 d b d h ($ million with home equity loan)
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Allocation Expenses (cont.) Allocation Expenses ( t) • Real Estate Taxes Real Estate Taxes • Must own the property and pay the tax • Can deduct if you are the equitable and Can deduct if you are the equitable and beneficial owner – has exclusive burden and benefits from the property
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Allocation Expenses ll i (cont.) • Contributions • Be aware of substantiation rules • Cancelled check or bank statement for under $250 Cancelled check or bank statement for under $250 • Receipt if over $250
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Planning Opportunities l i O ii • Partner that makes the higher income can pay the expenses that generate deductions and other partner takes the standard deduction other partner takes the standard deduction • Allocate dependents wisely if you have children that you both support children that you both support
LGBT Financial Planning GLOE’s LGBT Life Planning Series
Planning Opportunities (cont.) Planning Opportunities • Take into consideration • Value of exemption
• Filing as head of household g • Child tax credits and other phase outs Be aware of gift tax returns for transfer of • Be aware of gift tax returns for transfer of money in excess of $13,000 a year
4550 Montgomery Avenue, Suite 650N • Bethesda, MD 20814
Connect with Us Connect with Us Andrea B. Feinberg, CPA Email:
[email protected] Telephone: (301) 951 – 9090 Telephone: (301) 951 Website: www.grfcpa.com
