The Tax Policy Center made news at Valentine’s Day with a calculator that shows the tax cost or benefit of getting married. The Valentine’s Day connection makes it seem like it is intended for those contemplating marriage. That is so, so – heteronormative. Same sex couples who get married are not considered to be married for federal income tax purposes, thanks to Section 3 of the Defense of Marriage Act.
It turns out that the calculator may be of particular use to same sex couple who are already married. That is because the fight over the constitutionality of DOMA seems to be coming to a head. As a matter of fact it might be settled in June, a month associated with weddings. How apt. June is when it is predicted that the Supreme Court will hand down its decision in the Edith Windsor case. Edith Windsor is a widow. Her spouse’s estate was denied the unlimited marital deduction, because of DOMA. So same sex married couples may want to check out the calculator before they file 2012 returns.
What Is The Best Strategy ?
I don’t think anybody knows exactly how the IRS will react administratively if DOMA is declared unconstitutional. Hopefully they may take the approach they took with CCA 201021050, which held that California registered domestic partners had to split their income. Amending returns was optional, but they did not go back and adjust people’s returns who were willing to leave well enough alone:
You also asked how to treat a registered domestic partner who reported all of his or her earned income in accordance with CCA 200608038. For tax years beginning before June 1, 2010, registered domestic partners may, but are not required to, amend their returns to report income in accordance with this CCA.
So if you are married and actually benefiting from DOMA, it might be a good idea to not extend your 2012 returns. On the other hand, if you are married and would benefit from filing a joint return, you should extend. Maybe you will be able to celebrate the Fourth of July this year by filing a joint return that you know will not bounce.
My Annual Reminder
If you were married and barred from filing jointly, because of DOMA, in 2009, the Windsor decision will not help you with that year if you don’t have a timely refund claim in. The AICPA has provided some helpful tips about preparing a protective refund claim. I’m going to be deliberately vague about when the claim is due other than to say as early as mid-April. That’s because you should give your tax practitioner a break and ask her to prepare it now, before things get really busy. Also be sure to use certified mail. Don’t even let it get close to the due date, as the timely mailed-timely filed rule only applies to returned that are required to be filed, which does not include refund claims.
The Calculator Has Limitations
I’ve fooled around with the calculator a little. I did not check the computations. I figure if it is not doing the basic calculations correctly somebody who has more time on their hands than I do would have written about it by now. More significantly, it has serious limitations if you have any complexity at all to your situation. Consider Robin and Terry, the couple I have invented to get me around awkward pronoun problems. Robin has active participation real estate that is producing $20,000 per year in losses which are currently deductible. On a joint return with Terry those losses would not be currently deductible, because of the higher adjusted gross income. Terry on the other hand sold a principal residence for a gain of $270,000. All of that gain would be excluded on a joint return. The calculator does not address situations like that. The calculator does not even address the possiblity that Robin has capital losses and Terry has capital gains. If your affairs are at all beyond plain vanilla, you will need to set up both returns in full in order to make a sound judgment.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com Feb 17th, 2013