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Tax Saving Tips for Married Gay Couples

Same sex couples legally married under Massachusetts law must file as individuals for Federal tax purposes. You may be able to turn this to your advantage at tax time, especially if you itemize deductions (note that many of these tips also apply to heterosexual couples who are not legally married but share a household).

For example:

• Medical Expenses
  Credit as many medical deductions as you can to the lower incomer person, rather than dividing them equally. This may put the lower income person over the 7.5% threshhold for medical deductions. The cost for family health insurance, joint counseling, or children's medical copays and prescription costs could go on either tax return; put them where they give the greatest tax savings.
• Real Estate Taxes
  If your home is in both names, have the lower income person deduct the real estate taxes on their return. (If the higher income person can file Schedule L to deduct $500 in real estate taxes on their return, have them take just that amount and put the rest on the lower income tax return.)
• Mortgage and Home Equity Loan Interest
  Do the same thing with any deductible interest (for the sake of consistency, you may want to pro-rate it against the percentage of real estate taxes each person claims).
• Charitable Deductions
  If gifts to charity were made out of a joint account or thank you letters mention the lower income person, have them take those deductions.
• Exemptions for Dependents
  You may realize additional tax benefits by taking all exemptions for dependents on the lower income tax return, especially if it qualifies that person for other tax breaks like the Retirement Savings Contribution Credit, which can be up to $1,000. Again, for the sake of consistency, you may want the exemptions to follow whoever is taking the medical deductions for that dependent.

Both people are eligible for the standard deduction (in 2009, it is $5,700, or $6,200 with the special additional 'standard deduction' for real estate taxes). But by putting as many deductions as you can on the lower-income person's Federal tax return, they may end up with more than the standard deduction, resulting in additional tax savings.

You may need to play some "what if" scenarios to get the best tax savings. For example, if the higher-income person could go into a lower tax bracket by itemizing, that may result in lower taxes overall than if the lower-income person takes all deductions.

As always, discuss this or any other tax strategy with your accountant. I am not an accountant, but some of my clients saw tax savings last year because I allocated deductible expenses in their books using this strategy and had them speak with their accountants about it. Hey, if the Federal government won't recognize your marriage, you might as well get some tax savings out of it!