Tax Words to the Wise for LGBT Couples at Year's End

12/07/2015 03:12 pm ET Updated Dec 06, 2017
Financial accounting
Financial accounting

6 Proactive Financial Planning Tips to Stay Ahead of the Game

2015-12-06-1449364028-7510254-TaxPlanningLaurieWilsonFlickr.jpg Photo: Laurie Wilson Flickr

Whether you've been together for years or decades (or 10 minutes), 2015 taxes will be the first time many LGBT couples will be filing jointly on their federal and state returns because -- cue the trumpets -- we're married now! With marriage equality the law of the land, now we work out the nuts and bolts. As if filing taxes wasn't complicated enough, your first time filing as a married couple may throw off the balance you've developed filing separately all these time.

'Tis the (tax) season
Marriage equality may indeed bring changes to your tax situation including the dreaded 'marriage penalty' (more on this in a future post). But there's quite a lot you can do to bring your bill down now. But please, please, please don't wait until 11 p.m. on April 15th and risk getting shocked by a surprisingly high bill from the tax man or miss out on year-end deadlines for significant tax-saving opportunities.

So even though you'd much rather be decking the halls with holly right now, you two do need to get in touch with your inner Scrooges for a few hours of proactive tax prep as in immediately. Why? Because once the New Year has rung in, many of these opportunities will disappear overnight like yesterday's bottle of Dom Perignon Champagne.

Mind how you go:

1. Get on the same page with your spouse
Now that you are legally married and can file your taxes jointly, you need to work together to keep as much of your hard-earned money as possible. As a married couple, deductions may now make sense that didn't in the past. On the other hand, you may collectively end up in a higher tax bracket together, this may also be coupled with a reduction of potential tax deductions. If this is your first year filing together, you might want to see if a financial planner or CPA can squeeze you in for some much needed guidance and advice.

(As a Certified Financial Planner™ playing beat the clock with the calendar for my clients, this is my busiest season by far; nose to the grindstone with not a lot of fa la la, let me tell you.)

2. Review prior years' tax returns for both spouses
This isn't really a year-end tax tip, but all the same: If you were legally married but not receiving federal recognition (as happened in many states), you may be able to amend up to your prior three years of tax returns to filing as a married couple. I've worked with many people who were able to get thousands back with amended past years tax returns. It never hurts to check and see if you are owed a refund, on the other hand if filing as a married couple would have raised your tax bill, you should just leave things as they are.

3. Give your investment portfolio a checkup

Ask your fabulous financial planner if there are any tax harvesting opportunities in your non-retirement accounts. This can be a great way to reduce your tax drag on your investment accounts. Saving money on taxes within your portfolio is like additional return on your investment without taking any more risk. Investors in higher tax brackets should look to capture losses to help offset gains. However, if you happen to be in a lower tax bracket you may end up with the 0% capital gain rate for the year (income under $73,800 for a married couple) you may want to lock in some of the gains in your portfolio.

4. Be generous
This the time of year to do some winter cleaning, clean out the garage and closets, donate all that stuff to a charity and get a receipt. You will be doing some good and get a nice tax deduction in the process. For monetary contributions to charity, make sure you use a check or credit card as proof of your generosity in case the IRS questions your donation.

5. Max out your retirement accounts
Want to lower your tax bill? Do you want to retire some day? If you answered yes to both, contributing to your retirement accounts can be a win-win. The money you contribute to a 401(k) or an IRA are excluded from you income, helping you reduce your tax bill. Also that money can now be invested to help build your retirement nest egg.

If you currently are not on track to max your accounts out, you can direct some extra money from your last few paychecks to get as much money into the account as possible. This year you can contribute up to $18,000 to a 401(k). You have until tax time to fully fund an IRA or Roth IRA if you qualify. That can be another $5500 deduction. More if you are over 50. If one spouse has been out of work, or is a stay at home you can now also take advantage of a spousal IRA.

6. Be smart with your deductions
Is your income growing or shrinking? If it's shrinking, your deductions may be worth more this year. Or vice versa. You may want to pay some things like your January mortgage payment before year's end to push more of the deductions into this year. If your income is growing, you may want to put things like charitable deductions off until January so you can deduct them next year.

Don't forget, doing well financially is not how much you make but about how much you keep. Working with trusted financial professionals before end of the year will see that you can take advantage of all the tax opportunities our newfound marriage equality has to offer.

Till next time, when I share more tips on how to Be Fiscally Fabulous.

DAVID RAE, CFP®, AIF® is a Los Angeles-based Certified Financial Planner with Trilogy Financial Services. He has been helping people in and around the LGBT Community reach their financial goals for over a decade. Follow him on Facebook at www.facebook.com/davidraecfp or via his website, DavidRaeFP.com.

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Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA,SIPC, a Registered Investment Advisor. Trilogy and NPC are separate and unrelated entities.