It’s right here! RDPTaxes has always been me, Will B. Jones, and after I started my own practice it made more sense to integrate it with my regular Core 4 Financial business home page to avoid any confusion.
Comprehensive tax return & financial consulting services to the LGBTQ+ community
For the gay and lesbian community, trying to determine how to file tax returns can be overwhelming. We’ve helped hundreds of couples maximize their refunds and get the money the government owes them.
Domestic partner tax return preparation
Responding to IRS notices and correspondence quickly and effectively
Reviewing past years returns and, if beneficial, amending to get what the IRS owes you
How does this make a difference?
The impact comes when you split the income, and the potential ability to shift income from the higher earning partner’s marginal tax rate to his/her partner’s lower marginal tax rate.
Here’s an example
Let’s say that Diane earns $110,000 of taxable income in 2019, and her partner, Laurel, is a stay at home Mom, who had $3,200 of taxable income in 2019.
Previously, the IRS considered them unmarried for tax purposes, so Diane and Laurel would each pay income taxes on the money each of them actually earned.
So for Diane, who earned $110,000 of taxable income, the first dollar would be taxed at 10%, and the last dollar would be taxed at the 28% marginal tax bracket. Her tax due would be $20,575, with an average or average tax rate of 19%.
For Laurel, all of her $3,200 in taxable income would be taxed at 10%, for a tax bill of $320, resulting in a combined tax bill for their family of $20,895.
With this new ruling, they would still have to file their federal taxes as single individuals, but Diane and Laurel’s income would be combined, and divided evenly between them. This would mean they would each report $56,600 ($110,000 + $3200 divided by 2) of taxable income, with taxes due of $8,311 each, for a combined tax bill for their family of $16,622, saving almost $4,300 in income taxes.
Can you amend past year's tax returns?
Absolutely! If you did not file your prior year tax returns utilizing the community property split, then you may have overpaid your taxes. The IRS allows us to amend tax returns going back three years, so if there is a benefit to each year, the tax savings could add up! A quick analysis would need to be done to determine the advantage of amending prior year’s returns, so contact us today to discuss if this might work for you.
I started RDPTaxes.com back in 2010 after watching my close friends and family navigate complex domestic partnership issues like health insurance and taxes. My brother Brian and his partner of 30 years, Lance (pictured here with their twins), unknowingly inspired me to start the company. Watching the extra effort that Brian and others in the LGBTQ+ community have had to go through to enjoy the same legal and societal rights as others prompted me to do whatever I could to create a level playing field — both as a private citizen and professionally — which continues on at Core 4 Financial.
What clients have to say
I realized in my earlier messages that I was very understated in how I feel about the work that you have done! WOO-HOO!!!!!!!!! What a great outcome for us! Thanks for all your help.
Glad to give you a big two thubs up! Your help with gettings tax refunds paid for my new kitchen and I still had enough to put solar panels on the roof! Your service and letting me know this was possible for gay married couples helped us out tremendously. I hope all gay married coules hear about you so they culd do the same if they’ve been overpaying like I was. I’ve been spreading this about your service by word of mouth so I really hope this catches on! I don’t mind paying my fair share but feel much better now that I am paying and equitable rate compared to other tax payers. This is real equality! You’re the man!!!!
Resources for you
Understanding community property
As you may have notice, the entire reason this new IRS tax filing procedure for registered domestic partners and same sex married couples came about is because of the principle of community property. In a nutshell, community property means that what’s yours is mine, and what’s mine is yours, share and share alike. In order to determine what community is and what is separate, it is best to seek legal advice to explain your specific situation. That said, here are a few key points:
- Any income that is earned during the period that you are in the partnership or married becomes community.
- Separate property is generally property acquired prior to being married or becoming registered as domestic partners. Separate property value increases during the partnership or marriage is community property. What that means is that if you owned a home prior to becoming registered as a domestic partnership. When you registered, the value was $250,000. Seven years later, you sold the home for $400,000. The $150,000 in gains would be considered community property.
- Income from separate property is separate, but once it is co-mingled with community income, or is spent on items, it becomes community. Stock dividends or capital gains could fall in this category, as it does not qualify as “earned income”.
- IRA contributions and distributions are generally considered separate property.
- Income from pensions will be considered separate or community, largely depending on the timing of the funding. If it was funded entirely when you were married or in a domestic partnership, then it would likely be considered community.
- Social Security income is generally considered separate, but there is debate on this.
- Gifts or inheritances are generally considered separate property.
- Any property can be identified as separate, if added to a separate property agreement, and conversely, and separate property can be converted to community via an agreement.
- IRS Publication 555 has a lot more details on this subject, especially as it relates to taxes.
Filing Registered Domestic Partner Tax Returns
The concept for filing domestic partnership returns is simple:
- Add up your income, and report half on each partner’s return.
- Add up your deductions, and report half on each partner’s return.
- Create a table that shows the income, deduction, and each partner’s share. For tax years 2012 and after, use IRS Form 8958.
- Print it all out and mail it in, or e-file if available.
The more complicated part is in the details, but here are a few ideas to keep in mind:
- Keep in mind what is community property, and what is not and only split those items that are community under state law. Refer to “Understanding Community Property” for a primer on what is considered “community”.
- Track all the income, what is community and what is separate, in a spreadsheet for easy reference. You would then enter the appropriate items on each line of the tax return, and then use this to complete the new IRS Form 8958, which breaks down the income and deductions, how it was split, along with totals. This form, 8958, will need to be included with the tax return.
- For Schedule C income, it can be split at the Schedule C level, or the net income that pulls to 1040 line 12 can be split, and added to Line 21 as “Community Property Schedule C Allocation”. There is some debate on this method, as it impacts what is called Self Employment taxes. In the past, we generally split the net income based on the spirit of how Self Employment taxes are supposed to work. However, we may change if specific rulings are issued.
- Remember that the amount you ADD to one spouse’s return should equal the amount you DEDUCT from the other.
- Do the same with the deductions, and combine each category on Schedule A, if applicable.
- You are able to split any taxes withheld, both federal and state, but NOT estimated tax payments.
- With the new form 8958, you should be able to e-file, as we have for our clients for several years now. If you are paper filing the returns, print them out, and write on the top of the return in RED “Filing Pursuant to CCA 201021050”. This will help the IRS know how to process it correctly.
If you're looking for friendly, expert assistance with your tax or financial needs, we'd love to connect with you. Please give us a call, or fill out our contact form. We're looking forward to hearing from you.
2377 Gold Meadow Way, Ste 100, Gold River, CA 95670
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