Now That You are Legally Married, Is it Still Important to Have a Will?

The short answer is yes.

The long answer is that for many years, LGBT folks have been told how important it is to have a will because we had none of the legal protections of marriage or registered domestic partnership, and the state laws of intestacy (inheritance without a will) left same sex partners high and dry. This lack of any formal legal status in Washington prior to 2007 coupled with a higher likelihood of family members disapproving of an LGBT person’s choice of partner resulted in heart wrenching scenarios. A gay man whose partner died in the 1980’s recently shared with me that right after his partner’s funeral, his partner’s family arrived with a moving van and emptied their house of anything that he could not produce a receipt for, and without a will in place there was nothing he could do about it.

Is having a will any less important now that same-sex couples can be legally married? In essence a will is your set of instructions about who should get your property when you die, and it is often part of a larger overall estate plan which might also include non-probate assets such as life insurance policies, retirement accounts, or trusts. Today, if you are legally married or partnered and you die without a will or other estate plan in place, your surviving spouse or partner will not be as badly off as before. However without a will, the State of Washington still might not distribute your property in a way that either of you would have wanted. It is not as simple as your spouse getting everything. Exactly how your property will be distributed will depend on who all your surviving legal family members are.
Here are the basic intestacy rules:

  • If you have a spouse or registered domestic partner and
    • You have children: When you die, your spouse or partner will get your share of your community property, with the result that all of what you owned together now belongs to him or her. (For more discussion of what constitutes community and separate property, see my last post: .) In addition, your spouse or partner will get half of your separate property, with the other half getting divided amongst your children.
    • You do not have children (or do not have a legal parent relationship to the children in your life): Besides receiving your share of community property, your spouse or partner will get three quarters of your separate property, and the remaining quarter will go your surviving parent(s). If there is no parent, the remaining quarter goes to your surviving sibling(s). If there is no sibling, all of your separate property goes to your spouse or partner.
  • If you do not have a legal spouse or registered domestic partner and
    • You have children: All of your property will be divided amongst your children.
    • You do not have children (or do not have a legal parenting relationship to the children in your life): All of your property will go to your surviving parent(s). If there is no parent, all will go to your surviving sibling(s), then to grandparents, then aunts/uncles, in that order.
  • You are in a long-term committed relationship but do not have a legal status together.
    • The rules under #2 apply. When it comes to intestacy, the law does not recognize the family roles and relationships that members of the LGBT community have claimed and created in all the years before legal recognition of those relationships became available. Without a will or some other non-probate beneficiary designation naming your partner, he or she will get nothing.

How this might work is best illustrated by an example. Let’s say you are married without children and your primary asset is your house which you bought before you got married. Under community property law, the house would be presumed to be your separate property. Applying the rules of intestacy outlined above, your spouse would receive three quarters of the house, and the remaining quarter might go to your mother or brother, depending on who is alive. This could become complicated for your surviving spouse!

Drafting a will is one of those tasks that almost everyone finds a way to avoid and put off for another day. Especially if you are in reasonably good health, there is almost always something else to take care of that seems more urgent and pressing. Most of us do not like to dwell on it, but one certainty in life is that none of us know what tomorrow may bring, and sometimes what tomorrow brings does not give us the chance to go back and take care of after the fact. The good news is you can create greater peace of mind for both you and your loved ones now by taking care of your estate plan now. You can do this by consulting with an estate planning attorney, and you can also learn more here.
Disclaimer: This information is for educational purposes only and is not a substitute for competent legal advice from a licensed, professional attorney regarding your specific situation.
Eleanor Doermann is an attorney providing estate and life planning services for all ages and stages of life, as well as public benefits advocacy. As a long-time member of the Seattle LGBT community, she has a special interest in and passion for educating individuals and couples about the ramifications of post-DOMA marriage equality laws. Eleanor came to the practice of law after a 25-year-career as a physical therapist and opened Pathway Law, PC in south King County in 2013. Learn more at,, or by calling 206-499-3289.

New Home Office Deduction for the Self-Employed



Beginning with tax year 2013, the IRS is offering a Simplified Method for deducting expenses related to business use of your home.  This is a welcome change since this deduction has confused so many taxpayers.  Most of us don’t know whether our home office qualifies, or, if it does, how to take the deduction.

What Qualifies as a Home Office?

There are four basic tests that determine whether your home office is a qualifying home office.

  1. Exclusive Use – You must use this part of your home exclusively for business.  If you have a home office that you sometimes use for your business, its expenses are not deductible.[i]
  2. Regular Use – The business use of this part of your home must be regular. It cannot be occasional or infrequent.
  3. Trade or Business Use – This part of your home must be used in connection with a trade or business.
  4. Principal Place of Business – This part of your home must be your principal place of business. A home office is automatically considered the principal place of business if there is no other work location, if there is no other work location for administrative duties, if it is a location for meeting clients or if the home office is a separate structure such as a garage or studio.

How do I deduct Home Office Expenses?

There are now two methods for taking the tax deduction and taxpayer’s can choose, each year, which one they will use.

  1. Standard Method – Under the standard method a taxpayer deducts a percentage of certain household expenses. The deductible percentage is based on the square footage of the part of the home used for business as compared to the total square footage of the home.  These expenses are calculated and reported on Form 8829.
  2. New Simplified Method – Beginning with 2013, taxpayers can forgo all the calculations and just take $5 per square foot of the home used for business.[ii]

What expenses are deductible using the Standard Method?

Expenses are divided into “direct” and “indirect” expenses. Direct expenses are those that only benefit the part of the home used for business and indirect expenses are those that relate to the entire home. For example, painting the home office would be a direct expense while utilities would be an indirect expense.  Here’s a list of the most common home office deductions:

  1. Mortgage Interest and Taxes if home is owned
  2. Rent if home is rented
  3. Utilities
  4. Insurance
  5. Security
  6. Telephone

Which method should I use?

In most cases, a home owner will want to use the Simplified Method while a renter could go either way depending on the size of the home office.

For a home owner, the Simplified Method has an added bonus. The $5 per square foot is designed to give the taxpayer a deduction similar to what they would come up with if they used the Standard Method.  If using the Standard Method, a home owner would include their mortgage interest and real estate taxes to calculate that deduction.  If the Simplified Method is used, a taxpayer may come up with a similar deduction (to what would be calculated using Standard Method) AND still be able deduct their mortgage interest and real estate taxes as an itemized deduction on Schedule A. This allows for double dipping of deductions for the home owner.  A renter does not receive the same benefit. Unlike mortgage interest and real estate taxes, rent is not otherwise deductible.

As always, there are other factors to consider in choosing which method to use and each taxpayer’s situation is different.[iii]  The important thing is, if you just don’t want to deal with it, all you have to do now is take the square footage by $5 and you have your deduction. Easy as pie.

[i] There are two exceptions to this test. The expenses can still be taken if this part of your home is used to store inventory or if you use part of your home as a childcare facility.

[ii] There is a maximum deduction of $1,500 (300 square ft.)

[iii] The Simplified Method also has an effect on depreciation and carry-overs.

Same-Sex Couples in Non-Recogntion States Required to Prepare Multiple Federal Tax Returns

I haven’t posted in a while, as is usual for this time of year.  The New Year signifies many things for many people.  For me, it mostly signifies the beginning of tax season.  This year, there are also significant changes for me personally.  I have moved on from my previous firm and started my own.  I am now offering services through Advocate Accounting, LLC.  This is an exciting new change for me and I hope the New Year is just as promising for you.

When it comes to taxes, as always, there are important year-end changes of which you should all be aware.  The media coverage of the recent Supreme Court (SCOTUS) decision on DOMA has been widespread.  I posted about it when it occurred back in ­­­­­August.   An avalanche of rights have since been awarded to same-sex couples.  Among these is the right, and requirement, to file your Federal income taxes as Married Filing Joint (MFJ) or Married Filing Separately (MFS).

The IRS’ decision to use the “place of celebration” definition of marriage was a big win for the community.  It means that same-sex married couples (SSMCs) will be recognized as married if they have a marriage license from any marriage state, regardless of where they live.  This has both positive and negative tax effects at the federal level. Luckily, there are accessible resources explaining both.

At the state level, however, the effects are less known and highly variable. If you are a SSMC living in a state that recognizes your marriage (or you live in a non income-tax state) you have nothing to worry about. Those who have a legal marriage but reside in a non-marriage or non-recognition state are in a different boat, though, and are subject to yet another tax inequity.

Most income-tax states require that a taxpayer submit a copy of their federal tax return along with their state return.  The numbers from the state-submitted 1040 are used to calculate the state tax. Before the DOMA decision, SSMCs in marriage/recognition-states had to prepare three 1040s – two Single returns to be submitted to the IRS and another “dummy” Joint return to be submitted to the state. This was the case in states such as Oregon and California where joint filing was available with the state, but not with the IRS. A reverse situation now applies to a far greater number of taxpayers.

If you are married, but live in a non-recognition state, you may now be faced with the burden of preparing three Form 1040s. You will need to file one MFJ return, to be filed with the IRS, and two Single “dummy” 1040s to be filed with the state. Lambda Legal has an excellent list of marriage rights by state that can be found here.

Despite the enormous progress that has been made, inequity still abounds. Many attorneys speculate that a new SCOTUS case will emerge within the next 18 months.  The clear deficiency of the decision is an issue that people will not ignore.  Brace yourself, the marriage equality fight is far from over.

Same-Sex Married Couples to Get Refunds from the IRS for Taxes Withheld on Health Benefits


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The IRS’ announcement that they will recognize all same-sex married couples became effective on September 16th.   While filing status is the change that is getting the most attention it is not the only significant tax consequence. The effects are far-reaching and provide several avenues for same-sex married couples to get money back from the IRS.

For years, same-sex couples have paid taxes on health benefits that their opposite-sex counterparts have received tax-free.  The Windsor decision has put a stop to this, thankfully, and the IRS is now allowing employers and employees to seek refunds of these taxes.  Last week, the IRS issued guidance on how to claim refunds of both FICA (Social Security and Medicare) and Federal Income Tax Withholding.

Since FICA taxes are reported and remitted by your employer, you will have to rely on them to get your money back.  Unless they are willing to reimburse you out-of-pocket, they will need to amend their payroll tax returns. You will want to discuss this with your employer; they may not know they are also eligible for a refund.

Luckily, the IRS has created special administrative procedures simplifying this process.  Employers typically must amend each quarter individually.  Under these circumstances, the IRS is allowing employers to amend all four quarters with one amended form.  The procedures also require that the employer file corrected W2s.

If your employer does amend their payroll returns it will only get the FICA taxes back to you.  To claim a refund for any income tax withholding, you will have to file an amended income tax return using the corrected W2. This will be a significant benefit to some but it is worth noting that the benefit is not necessarily greater than any negative consequences amending may have. If you are a taxpayer that would have paid more taxes as married filing jointly, amending to claim a refund of payroll taxes may not be worth it.

IRS Will Recognize All Legal Same-Sex Marriages – Regardless of State of Residence


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The IRS announced today that all legal same-sex marriages will be recognized for Federal Tax purposes.  The looming question about whether the IRS would use the state of domicile or the state of celebration to define “legal marriage” has been answered.  They have chosen the state of celebration which means IRS marriage recognition will be based on where the marriage license came from, not where you live.  This isn’t surprising since it makes the most sense for all parties and lessens the burden to both taxpayers and the IRS. Additionally, it ensures consistent federal taxation to all same-sex married couples (SSMCs)

If you are a SSMC, you are now able, and required, to file as Married Filing Joint (MFJ) or Married Filing Separately (MFS) for tax year 2013. The IRS is also allowing, but not requiring, SSMCs to amend prior year returns to MFJ/MFS.[i]  The change in tax status will have varying impacts on taxpayers.  Those couples in which one spouse earns a majority of the income will likely see a benefit while those couples in which both spouses are high earners may see an increase in tax.

For tax purposes, you will be treated as married for the entire year regardless of what date you were married.   Here are some of the things that should be considered in your tax planning:

W-2 Withholdings

Now that you can file MFJ, adjustments to your W-2 withholding for federal income tax may be needed. Whether and how to adjust your withholding will depend on your particular tax situation. You can use the IRS withholding tables to estimate what your withholding should be as a MFJ taxpayer.  Comparing these amounts with your year-to-date withholding from your pay-stub will help you to determine what withholding is needed for the rest of the year.  Wage withholding is only one piece to the puzzle, though. Talk to your tax preparer to plan for your overall tax picture.

Employer Provided Health and Other Benefits Covering Your Spouse

Before the DOMA decision, and today’s IRS announcement, certain employer-provided benefits covering same-sex spouses have been included in taxable income.  Thankfully, this is no longer a correct treatment of these benefits.  If this situation applies to you, a conversation with your employer may be warranted.  Find out if and when they will stop withholding tax on these benefits.  Make sure to ask them whether you can take advantage of any available benefits immediately or if you’ll have to wait until the next open enrollment period.

IRA Contributions

Now that same-sex spouses are actually considered spouses by the IRS you may be newly eligible to make tax-deductible contributions to a Traditional IRA.  Late last year I posted about your prior inability to do this.  If you have no earned income (taxable compensation) and have thus been ineligible to contribute, you can now use your spouse’s earned income to qualify you for this benefit.  There are other applicable restrictions, however.  Here is a link to more information on Traditional IRA contributions.

Amended Returns

Those couples who will benefit from filing as MFJ should consider amending their prior open-year returns.  An “open-year” return is a return for a year that has not yet passed the  three-year statute of limitations for amending. The three years begins on the date the return was filed.  For most taxpayers this means that 2010 will be as far back as you can go. Luckily, those who will not benefit from MFJ status are not required to amend prior year returns at all.

[i] If you have a legal marriage and your 2012 return is still on extension, you can file MFJ/MFS for tax year 2012.

5 Commonly Missed Business Deductions for Sole Proprietors


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New business owners are often unprepared for the tax that comes along with self-employment income.  With wages, which are subject to federal income tax, Social Security (SS) tax and Medicare tax, the burden for the SS and Medicare is split between the employee and employer.  Those who are self-employed must pay both portions and it can come as a big surprise if you don’t plan ahead.

It is important to document your deductible expenses to protect yourself in the case of an audit.  Knowing what is deductible in the first place will help you make sure that your expenses are documented appropriately.  Here are some business deductions that are frequently missed.

Deduction for Business Use of the Home (Home Office Deduction)

If you use a portion of your home exclusively for business[i], you can take a business deduction for various expenses.  If you use the traditional method, you are able to deduct a portion of expenses such as insurance, utilities, mortgage interest and property taxes. The deductible amount is a percentage of total expenses and is based on square footage of the home office as compared to the total square footage of the home.

For 2013, a new “simplified” method is available for the home office deduction.  The new method allows for a flat $5 per square foot of home office space, up to 300 square feet maximum.  This new method lessens the administrative burden for the taxpayer.  A second benefit of the simplified method is that you can take the $5/square foot and claim 100% of your home mortgage interest and property taxes along with your other itemized deductions.

Under either method, a taxpayer will receive a home office deduction of $1,500 or less. The real benefit of establishing a home office is an increase in deductible vehicle expense (mileage).  When tracking business miles, commuting miles don’t count. Business miles only include travel from the main office to a secondary work location, or between multiple work locations. Travel from home to main office doesn’t qualify. But, if you have a home office, travel between home and the office is now travel between two offices.

Food and Meals on Premises

Business owners can deduct the cost of “Meals and Entertainment (M&E)” with clients, prospective clients and employees.  This category of expenses includes any meal and entertainment expense incurred during, directly preceding or directly following conducting business and they are 50% deductible. There is a similar deduction called Food and Meals on Premises (FM), except these expenses are deductible in full.  The distinction is location; on premises refers to in office.  Below are some examples of each of these expenses.

  • Meals and Entertainment

♦ Lunch with a potential client at a local restaurant to discuss your services

♦ A concert with a client immediately after a business meeting

  • Food and Meals on Premises

♦ Coffee and cookies purchased for your office reception are

♦ Food provided for a required in-office staff meeting

Small Employer Health Care Credit

Considering the coming implementation of the Affordable Care Act, this is one credit employers must know about.  For tax years 2010-2013 eligible employers can get a credit of up to 35% of premiums paid for employee health care. The maximum credit amount is scheduled to increase to 50% in 2014 and to apply to premiums paid to a Small Business Health Options Program (SHOP) Marketplace.

You may be an eligible employer if you pay 50% of the cost of single coverage for your employees and you have fewer than 25 full-time employees who are paid an average of less than $50,000/year. If you aren’t able to realize a benefit from the credit, you are allowed to carry the credit forward to a future year.

Charitable “Contributions” that are actually Marketing Expenses

Charitable contributions are a personal itemized deduction going against ordinary income.  Don’t confuse this with marketing expenses, a common and costly mistake. If you receive any benefit in return for your donation it is not charitable it is marketing, and that’s a good thing. Marketing is a business expense going against self-employment income which is taxed at a higher rate than ordinary income. In other words, a business deduction (marketing) is more beneficial than a personal deduction (charitable contribution).

For example, if you give money to a non-profit and they put your name on a banner or in a brochure, that’s an advertising expense, despite the fact that the money was given to a charitable organization.  Deduct this on your business’ Schedule C, not on your Schedule A for itemized deductions.

Self-Employed Health Insurance

Self-Employed taxpayers are allowed an above the line deduction for qualified health insurance premiums paid for the taxpayer, spouse, or dependents.[ii]  Above the line means that the deduction is calculated before arriving at Adjusted Gross Income (AGI). While the deduction is limited to the net profit from the business, most taxpayers do not reach that limit.

The ability to deduct the cost of health insurance as an adjustment to income, instead of an itemized medical deduction on Schedule A, is highly advantageous. Medical expenses deducted as itemized deductions are subject to a much steeper limitation. They are only deductible to the extent that they exceed 7.5% of AGI. For most taxpayers, the 7.5% rule means benefit is only realized in years where an unusually large medical expense such as surgery is incurred.

[i] There are some exceptions to the exclusivity requirement.

[ii] The IRS has not yet made comment on the Windsor decision about how they will define “spouse” for 2013 and beyond.

5 Commonly Missed Tax Deductions for Individuals


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The complexity of the code leaves many Americans feeling hopeless and confused when filing their tax returns. Many of us view tax returns as no more than expensive and tedious tasks to get out of the way at year-end, like renewing vehicle tabs. This common experience of unknowing, apathy and dread causes millions of missed tax deductions every year.

Those who are familiar with the code find all kinds of ways to lower tax. But, you don’t have to be a high-income earner utilizing complicated “loopholes” to reduce your tax liability. There are many easy to claim deductions and credits available. Here are some of the ones you might not know about.

Educator Expenses – An above the line deduction

Above the line deductions are those that are deducted before arriving at adjusted gross income (AGI).  These are nice deductions since many credits are calculated, or phased out, based on your AGI.  The Educator Expense deduction is small in comparison to many other deductions, but basically any teacher qualifies.

If you spend 900 hours or more teaching kindergarten through grade 12 you are eligible for this deduction. The IRS will allow a deduction of up to $250 for expenses such as books, supplies, equipment and other materials. Let’s face it, pretty much any teacher spends at least this amount each year.[i]

Retirement Savings Contribution Credit

This credit exists to encourage lower-income taxpayers to set aside money for retirement.  It is available to Single taxpayers whose AGI is below $28,750 or married couples with AGI below $57,500.[ii]  Depending on your AGI, you can get a credit ranging from 10% to 50% of your retirement contributions, up to a maximum credit of $1,000.

Qualifying contributions are those made to a Traditional or Roth IRAs and elective deferrals to 401k, 403b, 457, SEP or SIMPLE plans. The credit amount is reduced by any distributions from similar plans during the year the credit is claimed.

Residential Energy Credit

There are really two credits under this umbrella term: the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit. Both credits vary in amount depending on the eligible expense or property.  For both credits, manufacturer certification is required and for some expenses they must meet or exceed the Energy Star requirements.

The Nonbusiness Energy Credit is available for energy-efficient improvements such as windows, doors and insulation that are designed to reduce heat gain or loss. The qualifying costs and maximum credit depend on what type of property is purchased or improved.

The Residential Energy Efficient Property Credit is available for expenses such as solar heating and power or geothermal heat pumps.

Sales Tax Deduction for Large and Unusual Purchases

The IRS allows an itemized deduction for either state income tax or state sales tax.  In a state with no income tax sales tax is always deducted.  While some people may save receipts and add them up at year-end, most just take the deduction using the IRS table.  The deduction for sales tax is calculated based on your AGI and is often equally or more beneficial than what you would come up with after adding up all your receipts.

What many don’t know is that you can add additional sales tax on large and unusual purchases to the amount from the IRS table.  The table amounts are an estimate of sales tax for yearly average sales tax on regular purchases. As such, they do not take into account large amounts of sales tax incurred when purchasing a vehicle or remodeling a home.  For this reason, the IRS will allow you to add tax on such large and unusual purchases to the sales tax table amount.  You can also add local taxes to the table amount.

Miscellaneous Itemized Deductions

There is a section on Schedule A (where you deduct itemized deductions) for ”Miscellaneous Itemized Deductions.” These deductions are limited so that only the amount of expense that exceeds 2% of your AGI is deductible.  To put that in perspective, let’s say your AGI is $25,000 and you have $750 of miscellaneous deductions. In this scenario, only $250 of the $750 is deductible (2% of $25,000 is $500 so only the amount exceeding $500 is deductible).

Here are the most common miscellaneous itemized deductions:

  • Investment expenses – up to the amount investment income
  • Unreimbursed employee expenses such as travel, professional/union dues and safety equipment and tools.[iii]
  • Tax preparation fees
  • Certain legal expenses

[i] The expenses are not deductible if reimbursed by your employer.

[ii] These are the 2012 amounts.

[iii] These expenses are claimed by filing Form 2106.

DOMA is Dead – To Wed or Not to Wed; that is the Question


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With the fall of DOMA has come a rush of same-sex couples (SSCs) converting their partnerships into marriages.   It is an emotional time, especially for those who have waited for over thirty years to make that change.  I have been to three weddings since the fall of DOMA and have five more between now and the first week of September. Put simply, it is inspiring and I am proud of these couples.  Despite the pride and emotion we are all feeling, though, I urge all couples to proceed with caution.  The right to marry, and to be recognized as a spouse, comes with changes that are worth consideration.

The media has been quick to discuss a few of the enormous benefits of marriage, particularly in the context of health, retirement and Social Security benefits.  There has even been the occasional reference to the presumed right to file as married filing jointly (MFJ) in 2013. However, there are still questions on how, and to whom, these changes will be applied.

Despite the IRS’ immediate promise to “move swiftly,” they have not yet issued any statements about how they will implement the Supreme Court decision. We can be confident that the IRS will allow SSCs to file jointly if they have a valid marriage license by the end of 2013. The question then is what will be considered a valid marriage license. The answer hinges on whether the IRS will use the state of domicile or the state of marriage in determining who has a valid marriage license. While we wait for the IRS to make an official statement, the more pressing question for many is whether or not to get married at all, and if so, when.  Emotion and celebration aside, the tax implications of marrying in 2013 are significant.

The ability to file MFJ will not be beneficial across the board. Some couples will realize a benefit in their total income tax and others will not.  Generally, if there is only one earner, MFJ status will be financially beneficial.  Others will experience what is known as the “marriage penalty” and end up with a higher tax bill when filing MFJ. This usually occurs when each spouse is an earner and the combining of income pushes the couple into a higher tax bracket.

The combining of incomes may also push many couples to an adjusted gross income (AGI) level that excludes them from tax deductions and credits that they have been able to claim in the past. For example, in 2012, many single taxpayers were eligible for the Child Tax Credit as long as their AGI was below $75,000, the beginning phase-out amount for a single taxpayer. If in an RDP couple each partner had a child and each partner had an AGI of $60,000, it’s possible that they could each claim the credit.  The 2012 AGI phase-out for married taxpayers began at $110,000. In this example, if the couple was married, their AGI would be $120,000 and they would only be eligible for a reduced credit or, in some cases, none at all. Eligibility for many deductions and credits are determined by AGI and, unfortunately, the MFJ phase-out amounts are not equal to double the single amounts.

It is important to remember, too, that some of the discriminatory tax laws actually benefit unmarried couples. Perhaps the most significant is the adoption credit. My earlier post, The Adoption Tax Credit – One Good Thing the Defense of Marriage Act did for Registered Domestic Partners, goes into the details of why registered domestic partners benefit from the adoption credit in a way that spouses do not.    If you are planning on adopting a child, and are not yet married, you may want to consider completing the adoption in 2013. If the potential tax benefit of the adoption credit exceeds the combined benefit from other changes, it may behoove you to adopt in 2013 and marry in 2014.

No matter when you decide to tie the knot, it is important to be prepared.  A quick review of your tax situation can give you the information you need to be ready for the changes to come.  A small amount of planning can go a long way.

How the U.S. Department of Education’s Decision to Recognize Same-Sex Parents Affects Your Ability to Pay for College


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In late April of this year the U.S. Department of Education announced that they will begin recognizing same-sex parent households in the Free Application for Federal Student Aid (FAFSA) application process. The application will still fail to include a same-sex or registered domestic partner marital status, but instead will use “unmarried parents living together.” The new forms will also use gender neutral language such as Parent 1 and Parent 2 instead of mother and father.

In some ways this feels like an accomplishment in recognition and equality, and it is; but, yet again, it is bitter-sweet. We can add this to the list of situations where DOMA’s existence requires an institution to create workarounds in order to function as intended.  Just as the IRS has had to do with certain tax returns, the Department of Education has had to modify its processes in order to acknowledge same-sex couple households without actually being able to recognize same-sex relationships.  Regardless, it is still progress towards equal rights, and, with those rights come responsibilities.

Beginning with the 2014-2015 FAFSA application cycle, income information from both parents will be collected.  In the past, students who have same-sex parents have only reported the income of one parent. Now that the income of both parents will be included, many students will suddenly find themselves eligible for less aid, and in some cases altogether ineligible.

Luckily, if you anticipate your child to be eligible for less funding than you originally planned for, there are other tools available to help you. Some of the most commonly used are the various tax advantaged college savings plans.  Generally, these plans allow for tax-free earnings on your contributions as well as tax-free withdrawals if funds are used for qualified education expenses.

There are two types of college savings plans; 529 Plans and Coverdell Education Savings Accounts.

529 Plans

529 plans are state sponsored plans. This means that the attributes of each 529 plan are unique; each state does it their own way.

Washington’s 529 plan, the Washington State Guaranteed Education Tuition (GET) Program is a pre-paid tuition plan.  This plan allows contributors to pay for tomorrow’s tuition at today’s price. In a climate where college education costs are rising dramatically, this plan becomes quite attractive.

Contributions to WA’s GET program are in the form of “unit” purchases.  One hundred units is equal to one year of resident undergraduate tuition at WA’s most expensive institutions, currently either UW or WSU.  The value of your units will always be the current value, meaning, if you buy 100 units in one year, and five years later the cost of tuition has risen, your 100 units are still worth one year of tuition at current prices.

Coverdell Education Savings Accounts (Coverdell ESAs)

Coverdell ESAs are tax favored savings accounts. The contributions are not deductible; however, the earnings are tax-free. Unlike 529 plans, Coverdell’s have contribution limits, both in amounts that can be contributed and in eligibility to contribute at all. Contributions to Coverdell’s are limited to $2,000 per student per year.[i]  One benefit the Coverdell offers that 529 plans do not is the ability to use the funds for K-12 education. The tax-free and penalty-free withdrawals are not limited to post-secondary education as they are with 529 plans.

In addition to college savings plans, the IRS offers various deductions and credits to taxpayers who are paying for higher education.  It is possible to receive benefit from financial aid, college savings plans and deductions/credits in the same year, but they are not independent of one another.  Coordinating your education benefits is a critical piece of college planning. For example, funds you have set aside in a savings plan may affect a student’s eligibility for aid. Or, a taxpayer may or may not be able to exclude scholarships from their income and claim an education credit in the same year. Education assistance benefits from an employer will also have an effect.

No matter what your personal situation is, and whether or not the Department of Education’s announcement affects you, maximizing your education benefits can make a significant difference in your ability to pay for college. Start planning now!

[i] This amount begins to phase out based on the contributor’s Modified Adjusted Gross Income.

Federal Income Tax Extensions – Three Things you are Wrong About


There’s nothing like the panic that roars through my office in the days leading up to April 15th. Over the years I’ve found that a large portion of taxpayers don’t know they can file extensions. The ones that do know often have irrational resistance to them. It’s time to clear things up. I’ve addressed the three most common misconceptions below.

The IRS does not penalize you for Filing an Extension

There is no penalty for filing an application for a tax extension.  The IRS will not charge you any fee for extending your return. All a taxpayer needs to do is file a Form 4868 “Application for Automatic Extension of Time to File.” Notice the word “automatic.” Even though the form also uses the word “application,” the extension is granted to all individual taxpayers if it is filed timely (prior to April 15th). Automatic extensions extend your due date by six months, making your return due on October 15th[i].

Filing an Extension is not an “Audit Flag”

Extensions are far more common than you may suspect, particularly for business owners. It can take a lot of time to gather expense documentation or to wait for forms from other businesses that you may have invested in. The IRS wants you to file an accurate return; if extra time is needed to avoid fudging numbers, they are on board. The IRS chooses returns to audit both at random and by focusing on “problem areas.” Extensions are not a problem area. Problem areas are usually related to deductions and credits that take money from the Treasury. Currently, some of the areas that receive the most scrutiny are the Earned Income Credit and the misclassification of workers (independent contractor vs. employee).


Extensions do not Extend the Due Date for Paying the Tax

There is a reason that Form 4868 is called “Application for Automatic Extension of Time to File.” It is just that. The extension moves the due date for filing your return to October 15th, but your tax is still due April 15th. If you need to file an extension, you should estimate what you will owe, if anything, and make a payment prior to April 15th. Even though the IRS interest rate is very low, half of one percent, you can save yourself some money if you ensure you’ve paid by the 15th.

More Extension Facts

  • The IRS calls its interest a “penalty” so that you can’t deduct it. Generally, penalties are not tax deductible while interest is.
  • The Failure to File penalty is much greater than the Failure to Pay penalty. If you don’t file by the deadline they will charge you 5% of any tax owed; if you don’t pay by the deadline they will charge you ½ of 1 percent of any tax owed.

[i] Corporate returns are due March 15th and are extended to September 15th with Form 7004. Non-Profits returns are due May 15th and are extended to November 15th with Form 8868.