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Archive for Thursday, March 6, 2008

Domestic partners file state taxes as if married

March 6, 2008

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— When it comes to taxes, the times they are a-changing - at least in California.

As of Jan. 1, 2007, the state's 48,000 registered domestic partners had to start filing their state income taxes as either "married filing jointly" or "married filing separately."

But it's not going to be easy. Because the IRS does not legally recognize domestic partners, those couples in California must treat their federal and state tax returns differently.

This affects how they handle tax deductions and adjustments for everything from medical insurance premiums to IRAs to investment gains and losses.

The tax law change - similar to laws in Vermont, Massachusetts and a handful of other states - applies to same-sex couples as well as heterosexual couples over age 62 who live together in a "committed relationship."

It affects only those couples who are officially registered with the secretary of state's domestic partners registry.

Betty Yee, vice chairwoman of the State Board of Equalization, said the tax changes are among the last significant benefits coming out of 2006 legislation for the state's domestic partners.

"It really recognizes that they are heading up households, raising families and taking up the same responsibilities as traditional married spouses," said Yee, who worked with Senate Bill 1827's author, state Sen. Carole Migden, D-San Francisco.

But it's going to require some tricky calculations for those in domestic partnerships. With the IRS, they'll continue to file taxes as single individuals.

With the state Franchise Tax Board, they'll file as married couples, either jointly or separately.

The state has provided worksheets in its booklet, "Tax Information for Registered Partners," FTB Publication 737, for those who must make adjustments between the two conflicting tax forms.

Because not all computer tax programs may be updated to comply with California's law, consumers should check with individual software companies before purchasing a tax preparation program for their state taxes.

"It definitely complicates the tax season," said Guy Crouch, owner of Strategic Accounting Solutions Inc. in Sacramento, who was involved with the state's yearlong preparation for the tax law changes. "The days of a simple tax return are gone."

Crouch, who said about 20 percent of his tax clients are same-sex partners, said many are asking whether the state's tax changes will help or hurt them. In general, he said, those with large disparities in income will see the most benefit.

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