YOUR MONEY-Same-sex couples see big tax benefits from historic ruling

Thu Jun 27, 2013 2:59pm EDT

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(The author is a Reuters contributor. The opinions expressed are her own.)

By Amy Feldman

NEW YORK, June 27 (Reuters) - Jennifer Cole-Ruiz, a chef who recently opened La Mujer Gala tapas restaurant in Brooklyn with her wife, Madelein Ruiz, on Wednesday night planned to celebrate the historic U.S. Supreme Court decisions in support of same-sex marriage with a glass of cava after their customers had gone home.

The high court's landmark decision on Wednesday forces the federal government to recognize same-sex marriages, like that of Cole-Ruiz and Ruiz. The ruling also equalizes how same-sex couples, whose marriages are recognized by their states, will be treated for tax purposes.

Yet thorny issues remain for those who live in states that do not recognize same-sex marriages. Currently, 13 states plus the District of Columbia allow same-sex marriages, while the remaining 37 do not.

"It's not a 100-percent win," says Jane Bernardini, a tax partner at Anchin, Block & Anchin in New York. "It's a win for people who live in states that recognize their marriages."

Cole-Ruiz, 48, expects the ruling, which overturned key provisions of the Defense of Marriage Act (DOMA), will also help them financially by lowering taxes and extending them benefits as the married owners of a business.

"It's going to make a huge difference for my wife and me," Cole-Ruiz says.

For tax purposes, the ruling means that Cole-Ruiz and Ruiz, along with some 114,000 gay and lesbian couples who are already legally married, can now claim the same spousal tax benefits that straight married couples do.

INCOME TAXES

Filing joint tax returns as a married couple is the most far-reaching financial change, while the ability to leave assets to a spouse at death without owing federal taxes will alter the planning of wealthy couples and business owners.

Accountants say they have already begun to work on amended income tax returns for same-sex clients and that some should get refunds. Same-sex widows and widowers - who like plaintiff Edith Windsor, were required to pay federal estate taxes due solely to the lack of federal recognition of their marriages - may also be able to file amended returns to get that money back. Wednesday's ruling clears the way for Windsor to claim a $363,053 tax refund, plus interest.

For income-tax purposes, the financial impact of the Supreme Court's decision will vary. In general, couples in which one spouse earns a lot and the other a little will get a tax benefit. For high-earning, dual-income couples, the change is likely to cost them more in taxes due to the so-called marriage penalty.

But there are additional tax benefits when you claim married status. For example, same-sex couples with children will have an easier time claiming dependents on tax returns as well as getting a host of other tax benefits for their kids.

And couples that have been required to pay income tax on health benefits they received for a spouse can now avoid paying those taxes, which is a significant savings.

"There may be some surprises for couples the first time they file jointly," says Shari Levitan, a partner at Holland & Knight in Boston.

LESS COMPLEXITY, LESS COST

David Landis, chief executive of San Francisco public relations firm Landis Communication, says he almost doesn't care about whether he gains or loses financially; he is just overjoyed that his marriage to Sean Dowdall is recognized.

On a practical level, however, Landis, 56, figures the ruling will simplify their taxes and drastically lower the fees they pay to their accountant.

"We've been paying our accountant two or three times the amount of money straight couples were paying," Landis says.

That is because state tax returns are calculated off the federal one, but same-sex couples who have not been able to file federally as married first had to create dummy tax returns in which they were.

Since their federal and state forms did not match, Landis said the Internal Revenue Service would routinely come back with questions.

"Every year, we would get a notice from the IRS because they didn't understand how this all worked," Landis said.

Those same-sex couples who had applied for extensions on filing last year's federal tax returns can now do so with clarity. Others may want to amend past returns in order to claim their married status.

Typically, it is possible to amend a return for three years, but some couples had filed so-called protective claims in order to retain their ability to claim a refund beyond the statute of limitations if the court ruled against DOMA.

Anchin's Bernardini is looking at filing back tax returns for all same-sex couples who live in states that recognize their marriages. She expects some to get big refunds.

"It could be a difference of $10,000 per year," she says. "It's not everybody, but it could be sizable."

ESTATE PLANNING

The estate-tax rules allow married couples to pass an unlimited amount of assets from the deceased spouse to the surviving one without owing tax. With yesterday's ruling, gay and lesbian couples can do the same.

Married couples are able to leave as much as $10.5 million, free of federal estate taxes, to their heirs. That benefit also now applies to same-sex couples.

Same-sex widows and widowers who had previously paid estate taxes on assets they received from a deceased spouse within the past three years can now go back and file an amended estate tax return to claim a refund.

Gail Horowitz, an attorney at the Wade Horowitz LaPointe law firm in Brookline, Massachusetts, says she's doing just that for a man whose husband died in 2009, leaving him substantial assets.

"We filed an appeal on it very quickly and hope that means he will get a refund now," Horowitz says.

Horowitz also says she knows a couple that hopes to get a $50,000 refund from amended tax returns. "You are paying for the party to celebrate," she told them. (Editing by Lauren Young and Gary Crosse)

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