On June 26, 2015, the Supreme Court settled the issue of same-sex marriage in the U.S. with the landmark decision in Obergefell v. Hodges. This decision requires states to issue marriage licenses to same-sex couples and for states to recognize such marriages that were performed in other states. Gay marriage became legal in all 50 states.
The governmental recognition of same-sex marriage means that same-sex couples can now enjoy the same rights and privileges that opposite-sex couples do — and the same responsibilities and potential pitfalls of marriage. Taxes are a prime example. Married same-sex couples must now consider the best tax filing status now that they have the options of "married filing jointly" and "married filing separately". As with opposite-sex couples, the answer is not always straightforward.
When spouses have a large disparity in their incomes, they can benefit from the "marriage bonus" of filing jointly. That has the effect of averaging out the incomes, lowering the tax burden on the higher-earning spouse a lot while raising the taxes on the lower-earning spouse slightly. The couple's overall tax bill is then lowered as a result.
When spouses earn approximately the same amount of money, the effect depends on the amount of their collective income. Couples with more modest matching incomes are likely to pay about the same amount of tax as before, while higher-earning couples could run into the "marriage penalty" of ending up in such a high tax bracket that they would have been better off filing as singles.
Same-sex couples with higher incomes are more likely to itemize, and also have income levels where certain itemized tax deductions like mortgage interest, charitable contributions, and property taxes begin to phase out or disappear completely. On the other end of the income scale, combining incomes could make a couple ineligible for some tax credits and other low-income benefits. Unfortunately, the only good way to determine this is to calculate taxes both ways (joint and separate status).
Same-sex couples in some states that did not recognize gay marriage prior to the ruling already have practice doing multiple returns. State taxes were not as straightforward prior to the ruling, because some states that did not recognize same-sex marriage required couples to file under single status even though their federal status was married filing jointly. The state definition of income in these states was tied to the federal definition, forcing the preparation of an extra "dummy" federal tax return for each partner just to define income for state tax purposes.
These gyrations are no longer necessary thanks to the Supreme Court decision. However, you have the option to amend your state tax return for the 2014 tax year if you will benefit from the change and are willing to take the time to assess the difference. TurboTax offers online adviceon how to amend taxes in those states should you decide to do so.
Same-sex married couples must also take the time to adjust all financial planning vehicles such as retirement plans, wills, and estate plans to denote the proper marriage and beneficiary status. Money or property transfers to a spouse are generally exempt from federal taxes, so failure to update your status correctly could be costly.
From now on, same-sex married couples have the same tax decisions to make that opposite-sex couples do. The Supreme Court decision provided clarity to their taxes. Take note, because the words "taxes" and "clarity" rarely appear in the same sentence.
Read more at moneytips.com.