For same-sex couples in U.S., marriage can complicate taxes

'Married, filing jointly,' a first for gay couples
By Beth Pinsker
||Last Updated: 02/22/2016

NEW YORK (Reuters) — Before the Supreme Court legalized same-sex marriage across the United States last June, couples in 13 states still had to perform a complicated dance of filing separate tax returns, even if they had been legally married in another state.

This year will be the first time that those couples - and others who delayed marriage until the landmark court ruling - get to experience the joy of "married, filing jointly."

But not everyone is so thrilled.

Joe Hollar, a 43-year-old who lives in Florida, got married in March 2015 and is just now assessing his new tax situation. So far, it does not look so good.

"I am really naive because I did not know it was so complicated," he said.

His biggest concern is how to find a common approach for tax preparation - Hollar uses an accountant and takes itemized deductions; his husband does his own taxes and takes the standard deduction.

"It's not in his best interest to itemize, but I can't go any other way, I'll owe a fortune," Hollar said.

Here are three important tax lessons for gay couples.

1. It is now easier to file your taxes - and cheaper

Taxes for same-sex couples used to be so torturous that tax professionals developed specialties for navigating the process. Eve Davis, an enrolled agent in Portland, Oregon, who operates In or Out Tax Service, even gave classes to other tax preparers.

In some early-adopter states like Massachusetts, couples could file a joint state return, but had to file separate federal returns. When federal rules changed in 2013, those living in states that still restricted same-sex marriage had to file separate state returns but could file a joint federal return.

Married couples then had to decide how to claim deductions like childcare or home mortgage interest.

Formerly, Davis had to charge LGBT couples accordingly, billing for each individual return. Now it is just one fee. "But that's OK with me," she said.

It is also easier for same-sex couples to use automated software such as Intuit Inc's TurboTax.

"They're able to file one state and one federal, instead of multiple. It reduces tax prep time and cost," said Lisa Greene-Lewis, a CPA and tax expert with TurboTax.

2. Welcome to the marriage penalty

Carol Berger, a certified financial planner for Berger Wealth Management in Peachtree City, Georgia, got married in July 2015, in celebration of the Supreme Court decision.

Running projections for her taxes this year with her wife has been an eye-opener. "The thing that surprises a lot of people is that they fall into a higher tax bracket," she said.

They will go from receiving a refund of several thousand dollars when they filed individually to owing money this year, filing jointly. Because Berger is an independent contractor, she did not adjust her quarterly estimated tax payments enough after the wedding to account for the change brought on by adding in her wife's income.

She is learning, though. Before Berger files this year, she plans on making contributions to a self-employed retirement account to lower her tax burden. She also already tripled her first quarterly payment for 2016.

3. Look-backs can be worth it

Since the tax process was so complicated in previous years, same-sex couples have a window of opportunity to amend past tax returns to recoup taxes they paid unfairly. One common reason for examining past returns is health benefits for a domestic partner that might have been taxed as income.

Davis has done about 20 of these tax reviews in Oregon for couples who went through the process. TurboTax's Greene-Lewis said this is something that taxpayers can do on their own through their desktop product.

Hollar, in Florida, is not so sure he will delve into the process, however.

"I have amended tax returns in my past, and it turns into future audits," he said.

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