Recently I helped sponsor a new spring ritual, the Brooklyn Pride LGBTQ Wedding Expo. The event focused on wedding festivities like flowers, catering, honeymoon travel and more. I was there because I feel financial and estate planning strategies for couples are equally important. Marriage melds you and your partner into an “economic unit.” To reach your financial goals, you have to work together. That includes considering tax implications. Here are six ways a wedding can affect your taxes—and some tips for avoiding these tax traps.
State Income. If your state recognizes same-sex marriage—that is, if you live in New York, Washington, Iowa, Vermont, New Hampshire, Maine, Connecticut, Massachusetts, Maryland, or Washington, D.C.—you can file your 2013 state tax return as “married” or “married, filing separately.” (Note: Washington and New Hampshire have no or limited state income tax.) If you marry on vacation but return to a state that doesn’t recognize same-sex marriage, you will file your taxes as strangers. See HRC.org for state recognitions.
Federal Income. The Defense of Marriage Act (DOMA), the federal law that prohibits recognition of same-sex marriages, is before the Supreme Court now. Under DOMA, your marriage is not currently recognized by the federal government for tax purposes or any of the 1,138 rights, protections and obligations related to marriage. You cannot file your federal income tax as “married.” You each file as “single,” with a few exceptions for heads of household. You may pay more or less tax than opposite-sex married couples, depending on your individual situation and tax brackets. You may need to prepare a dummy federal return as “married” to calculate numbers for the state return, but this is not filed.
State Estate. Some states impose a tax on assets passing to a non-spouse at death. Your marriage may exempt you from this potential tax trap.
Federal Estate. The federal government imposes a tax on assets passing to a non-spouse at death for estates in excess of $5,250,000 in 2013. Your marriage does not exempt you from the tax at this time.
Inheritance. Some states impose a tax on assets passing to a non-spouse at death. Your marriage may exempt you from this potential tax.
Gifts. Gifting your partner more than $14,000 per year may result in a federal taxable gift. Adding your new spouse to a home title or bank account can be treated as a gift of half the asset. Your marriage does not exempt you from this federal gift tax.
After your honeymoon, make an appointment with your financial advisor, estate planner or accountant and make sure they have expertise working with same-sex couples. The benefits of taking time to plan together can last a lifetime.
Ellen M. DeSarno is a registered representative and investment advisor representative who offers securities and investment advisory services through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA. AXA Advisors and its associates do not provide tax or legal advice. Please be sure to consult with your professional tax and legal advisors regarding your particular circumstances.