FEDERAL & STATE TAXES FOR LGBT MILITARY FAMILIES: PART I

Transcription

1 FEDERAL & STATE TAXES FOR LGBT MILITARY FAMILIES: PART I Facilitated By: Lori Hensic, PharmD, BCACP, AAHIVP Director of Educational Affairs The American Military Partner Association lori@militarypartners.org Prepared & Presented By: Karon Bohlender, CPA karon.bohlender@gmail.com

2 DISCLAIMER Please know that the information presented here is not all encompassing or an exhaustive list of changes brought about by the repeal of DOMA. It is for informational purposes only and should not be construed as legal and/or tax advice. You should contact your lawyer and/or tax advisor for more information on how these changes may apply to you specifically.

3 AM I REALLY MARRIED? Photo by Ashleigh Barraza How do I file my tax return with the DOMA Ruling?

4 FEDERAL RECOGNITION OF SAME-SEX MARRIAGES Were you married in state or foreign country where it is legal? You can reside in a state where there is no legal recognition and still be married for Federal Tax filing status. You can reside in a state with a ban and still be married for Federal Tax filing status. Were you married before December 31, 2013? If you filed your 2012 tax returns as single taxpayers you have the ability to amend those tax returns into a joint tax return to obtain a refund. If you were married prior to 2013 you have the ability to amend previously filed separate tax returns to obtain a refund (discussed later in the presentation). NOTE: Registered Domestic Partnerships (RDP) and Civil Unions (CU) are NOT recognized as a marriage for Federal Tax filing status.

5 WHICH FORM DO I USE? Can I use the Form 1040-EZ If you are Single or Married Filing Jointly with no dependents If you only have W-2 wages, Unemployment Compensation and/or Interest Income less than $1,500 If your taxable income is under $100,000 The only Federal Tax Credit available is the Earned Income Credit You DO NOT itemize deductions You CANNOT use the form for Married Filing Separately

6 Please note that there is no area for dependents Excerpt from 1040-EZ Filing Form

7 Tax and Credits are limited to withholding an Earned Income Credit Excerpt from 1040-EZ Filing Form

8 WHICH FORM DO I USE? Can I use Form 1040-A All filing status are eligible to use this form Income can be W-2 Wages, Unemployment, Retirement Interest and Dividends Can take student loan interest as well as education expenses You do not itemize deductions Taxable income is less than $100,000 Tax credits available are Child and Dependent Care, Education, Retirement Savings, Child, and Earned Income. You do not have Alternative Minimum Tax adjustments on your stock options

9 Dependents allowed on this form Excerpt from 1040-A Filing Form

10 Expanded Income section Excerpt from 1040-A Filing Form

11 Adjustments to income are allowed IRA deduction allows you to save for retirement and exclude that from your taxable income. $5,500 per spouse if other guidelines are met. Excerpt from 1040-A Filing Form

12 Expanded Tax Credits section Excerpt from 1040-A Filing Form

13 WHICH FORM DO I USE? If you are unable to use either the 1040-EZ or 1040-A then you will need to utilize Federal Form 1040 One of the main reasons a taxpayer files on Form 1040 is to itemize deductions (listed below) when greater than the Standard Deduction Home mortgage interest and real estate taxes Personal Property taxes auto, motorcycle and boat are the most common State withholding taxes or Sales tax when no state income tax Charitable Contributions both cash and goods (non-cash) Medical, Unreimbursed Employees expenses, investment expenses, tax preparation fees subject to limitation associated with a percentage of adjusted gross income.

14 Expanded Income reporting section of the Form 1040 Excerpt from 1040 Filing Form

15 Expanded Adjustment section of the Form 1040 Excerpt from 1040 Filing Form

16 Expanded Tax and Credits reporting section of the Form 1040 Excerpt from 1040 Filing Form

17 DO I FILE JOINTLY OR SEPARATELY? Now that I am married, do I have to file a joint tax return with my spouse? You CANNOT file Individual tax returns. You may file a Married Filing Separate tax return but it may result in higher taxes. If you file separate tax returns you are required to list your spouses name and social security number - example on future slide Even though you file a married tax return for Federal purposes, you will still need to comply with your state of residence filing rules. There are both advantages and disadvantages to filing separately that we will go over later in the presentation.

18 FILING YOUR JOINT TAX RETURN Taxpayer and Spouse s name have no rules about who is listed first but both HAVE to be your legal names as shown on your Social Security card. Excerpt from 1040 Filing Form

19 FILING YOUR RETURN AS MARRIED FILING SEPARATELY (MFS) Taxpayer and Spouse s name have no rules about who is listed first but both HAVE to be your legal names as shown on your Social Security card.

20 SCHEDULE A Itemized deductions are reported on Schedule A when they total higher than the standard deduction Most commonly used when a home is owned The second most common reason is high State income tax withheld on W-2 Deductions include: Taxes: Income tax withheld, Real Estate taxes, and property taxes (automobile) Home Mortgage Interest and Mortgage Insurance Premiums (see guidelines) Charitable Contributions both cash and goods Casualty and/or Theft losses subject to limitations Items limited to 2% of AGI most common is Unreimbursed Employee Expenses and tax return preparation fees PLEASE NOTE: If you are use the Married Filing Separately if one Spouse itemizes the other Spouse must itemize even if it is less than the Standard Deduction.

21 Schedule A

22 Schedule A Other deductions Because of the 10% threshold Medical deductions are not entered. The most common item used in this section is Gambling Losses, limited by the amount of the reported Gambling winnings on 1040 Page 1.

23 SHOULD I FILE SEPARATELY (MFS)? Do I have to live with my spouse in order to file jointly? NO. You may file jointly even when separated by deployment or by living in separate states. Will we itemize our deductions? If you answer yes to this question, is it still advantageous to itemize if split with spouse on separate returns? Does one spouse make significantly more in earnings than the other? What tax bracket are the individual spouses in? If the spouses are both in the 25% or lower then filing separately may produce a higher tax liability. If one spouse s earnings take them into the tax higher levels of the 25% and the higher tax brackets of 28%- 39.6%, then more than likely it will produce a higher tax liability. Do you live in a community property state, i.e. CA? If yes then you may be required to report 50% of each other s income which may be a huge disadvantage. PLEASE NOTE: If you have children and have physically lived with your spouse for more than 6 months you CANNOT file Head of Household.

24 MFS SCENARIOS AND RESULTS Both spouses make around the same income with taking standard deduction. Spouse #1 Spouse #2 Totals Joint Wages $50,000 $50,000 $100,000 $100,000 Deduction 6,100 6,100 12,200 Standard 12,200 43,900 43,900 87,800 87,800 Exemption 3,900 3,900 7,800 7,800 Taxable Income 40,000 40,000 80,000 80,000 Tax Liability $5,935 $5,935 $11,870 $11,864 Savings $6

25 MFS SCENARIOS AND RESULTS One Spouse makes more than the other; taking standard deduction. Spouse #1 Spouse #2 Totals Joint Wages $75,000 $25,000 $100,000 $100,000 Deduction 6,100 6,100 12,200 Standard 12,200 68,900 18,900 87,800 87,800 Exemption 3,900 3,900 7,800 7,800 Taxable Income 65,000 15,000 80,000 80,000 Tax Liability $12,185 $3,308 $15,493 $11,864 Savings $3,629

26 MFS SCENARIOS AND RESULTS One Spouse makes more than the other; utilizing itemized deduction. Spouse #1 Spouse #2 Totals Joint Wages $75,000 $25,000 $100,000 $100,000 Deduction 14,000 11,000 25,000 Itemized 25,000 61,000 14,000 75,000 75,000 Exemption 3,900 3,900 7,800 7,800 Taxable Income 57,100 10,100 67,200 67,200 Tax Liability $10,210 $1,073 $11,283 $9,191 Savings $2,092 The split between itemized deductions is shown with the higher earner taking more because it is presumed that their state taxes withheld on their earnings will be higher.

27 TO AMEND OR NOT AMEND? The only years that are open to amending are 2010, 2011 and 2012 Should I amend? Were you married prior to or during this time? Remember that your filing status is based on your marital status on December 31of any year. What is our taxable income combined? Did one of us itemize while the other took the standard deduction? Did we file our state return jointly? (CA allowed for joint tax returns for both married and RDP) Prepare a draft tax return for each year and compare to your returns as filed to see if you will get a refund. If yes then file or the years that you can If no then do not file the amended return, it is NOT required to amend.

28 SHOULD I PREPARE MY OWN RETURN? Which Form are you using? 1040-EZ and 1040-A are the simplest forms to use 1040 with Schedule A Did you prepare your own tax returns in the past? Other than your marriage, were there any other major changes in your tax life? Purchase of a house Birth or adoption of a child? Do you want representation if your return is picked for an audit? The IRS provides guidelines for finding a preparer:

29 TIPS The IRS will not be accepting tax returns until after January 31. If able utilize the free filing through the IRS: If not comfortable with preparing your own return find a preparer with knowledge of LGBT filing issues. Educate yourself about the different types of preparers: Professionals/Understanding-Tax-Return-Preparer-Credentials Look in local business directory listing Ask a friend for a referral Call your local LGBT community center If you believe that you were given incorrect or fraudulent advice from a tax return preparer you can report them to the IRS using: Professionals/Make-a-Complaint-About-a-Tax-Return-Preparer

30 QUESTIONS Questions about Federal tax return filing? State Tax return questions will be addressed during the webinar on January 26 th 2pm EST Contact Information: Karon Bohlender, CPA