Several states recognize same-sex marriages, same-sex civil unions and domestic partnerships for tax purposes and allow these couples to file joint tax returns.  The rules vary state-by-state.  These states (so far) are California, Connecticut, the District of Columbia, Maine, Massachusetts, New Jersey, New Hampshire, Oregon and Vermont. 

The problem is that the IRS (that is the federal government) will not recognize any of these couples as eligible to file a federal joint return.  If you are considering filing a joint state return to the state, the challenge is that the preparation process can be very complicated and the reality check is “…is it worth the time and potential expense?”

Preparation of annual tax returns begins with the thorough and accurate preparation of your federal tax return.  Most state tax returns then begin with the resulting balances in your federal return and add or subtract the necessary adjustments based on their specific tax laws.   For same sex couples who wish to file their state taxes jointly, we need to prepare three federal tax returns, one joint to be used as a base for the joint state tax return and two single, to be filed with the IRS.

California will allow same-sex joint tax returns to be filed for the first time for the 2008 tax returns.  California’s process is much more complex than the other states since it has its own list of adjustments to be made to its joint state return, most of which are very unclear as to their actual application.  This has created a very confusing tax season for tax preparers.

The reality check – is it worth it?  For instance, in New Jersey and Vermont where the highest tax bracket requires at least $500,000 and $336,500 in combined income, respectively, it may be worth it.  Also, in situations where one spouse works, the other doesn’t but owns the house and is liable for the mortgage, it may be worth it. 

Bottom line - sit down with your tax advisor to do some serious tax planning and maximize your combined tax position.  Saving tax at the federal and state levels may be more desirable than filing based on your marital status.

For more information please contact Maribel@mtpcpa.com

Maribel Torres-Piñero, CPA