Classed as “single” by our tax system, gay and lesbian partners have some tax advantages
by Judy Arfa
Our financial and legal systems were not designed with the LGBT community in mind. In Texas, gays and lesbians are considered “single” for tax purposes. Though there are inherent disadvantages in this treatment, there are also some very real advantages and opportunities for tax savings, depending on your income and that of your partner. Here are some of them.
Tax Opportunities for the Self-Employed
Are you self-employed and your partner contributes to your business? Here are some special tax benefits for you:
• Couples who are also self-employed business partners can shift income to the partner who is in the lower tax bracket. For example, partner #1 is in the 33 percent tax bracket, and partner #2 is in the 15 percent tax bracket. Partner #1 can deduct professional fees paid to partner #2, thereby decreasing partner #1’s taxable income and perhaps moving him to a lower tax bracket. Partner #2 reports this income on his personal return and pays taxes at the 15 percent rate. This also works if only one of you is self-employed, so long as the self-employed person is the one with the larger income.
• If you hire your partner as an employee, you can deduct the health insurance premiums paid on her behalf as a business expense. Though your partner may report these premiums as an itemized deduction on her personal tax return, IRS limitations may result in no tax deduction.
• If you hire your partner as an employee, you can also deduct retirement plan contributions made on his behalf. Though your partner may report these contributions on his personal tax return, if he opened an IRA, had sizeable income, and was covered by another employer’s retirement plan, there would likely be no eligible tax deduction.
Tax Opportunities of Joint Property Ownership
Tax Opportunities for Parents
Tax Opportunities for Shared Investments
Judy Arfa is a CPA in Houston. This is her first article for OutSmart magazine.