Insights + Resources

Tax & Estate Strategies Update for Married LGBTQ Couples

Sep 16, 2020

The 2015 Obergefell v. Hodges Supreme Court decision streamlined tax and estate strategizing for married LGBTQ+ couples. If you are filing a joint tax return for this year or thinking about updating estate strategies, here are some important things to remember.

Keep in mind that this article is for informational purposes only and not a replacement for real-life advice. Also, tax rules are constantly changing, so please contact a tax or legal professional before amending or adjusting any tax preparation materials. For estate strategies, be sure to reach out to a dedicated estate professional at Epic Capital.

You can file jointly if you were married at any time this year. If you married on January 1, June 8, or December 31, it doesn’t matter; you can still file jointly as a married couple. Under federal tax law, your marital status on the final day of a year determines your filing status. This rule also applies to divorcing couples. Now that marriage equality is nationally recognized, filing your state taxes is also now much easier.1,2

If you are newly married or have not considered filing jointly, the fact is that most married couples can potentially benefit from doing so. If you have or want to have children, you will need to file jointly to qualify for the Child and Dependent Care Tax Credit. Filing jointly also makes you eligible for Lifetime Learning Credits and the American Opportunity Tax Credit.3

You can gift greater amounts to family & friends. Prior to the landmark 2015 SCOTUS ruling, LGBTQ+ spouses were stuck with the individual gift tax exclusion under federal estate tax law. An LGBTQ+ couple could not pair their $15,000-per-person allowances to make a gift of up to $30,000 as a couple to another individual, as married straight couples could. Now, LGBTQ+ spouses can gift up to $30,000 to as many individuals as they wish, per year.4

You can take advantage of portability. Your $11.58 million individual lifetime estate and gift tax exclusion may be adjusted upward for inflation in future years, but it will also be portable. Straight couples have had this estate tax break since it was introduced several years ago. Under the portability rules, when one spouse dies without fully using the lifetime estate and gift tax exclusion, the unused portion is conveyed to the estate of the surviving spouse. So, doing the math, if a spouse dies in having used only $2.1 million of the $11.58 million lifetime exclusion, the surviving spouse, thereby, ends up with a $9.48 million lifetime exclusion.5

The unlimited marital deduction is also now available to LGBTQ+ couples. This is the basic deduction that allows one spouse to pass assets at death to a surviving spouse without any effects of federal estate tax.1

Remember to check on state tax laws. In which state do you reside? Investigate the tax laws in that state with the help of a tax or financial professional.

Marriage equality has made things so much simpler. The hassle and extra paperwork that some LGBTQ+ couples had to face at tax time is now, happily, a thing of the past with these new estate strategies.

Tags: , , , ,

More Insights

May 20, 2024

Withdrawing taxable funds from a tax-deferred retirement account before age 59½ generally triggers a 10% federal income tax penalty, on top of any federal income taxes due. [Distributions from Section 457(b) plans are generally not subject to an early distribution penalty; and the penalty for distributions from SIMPLE IRA plans during your first two years … Continue reading “Exceptions to 10% Early Withdrawal Penalty”

May 20, 2024

In today’s corporate environment, cost cutting, restructuring, and downsizing are the norm, and many employers are offering their employees early retirement packages. But how do you know if the seemingly attractive offer you’ve received is a good one? By evaluating it carefully to make sure that the offer fits your needs.

May 17, 2024

Do bad money habits constrain your financial progress? Many people fall into the same financial behavior patterns, year after year. If you sometimes succumb to these financial tendencies, now is as good a time as any to alter your behavior.

May 15, 2024

You don’t want to pay more in federal income tax than you have to. With that in mind, here are five things to consider when it comes to keeping more of your income.

May 13, 2024

There’s a subjective uncertainty associated with financial wellness. Are you financially fit? And if so, how fit are you? While there is no clearly defined threshold for answering affirmatively, much less grading your level of fitness, there are baseline elements associated with financial fitness. To make sure that you’re on the right track, develop a … Continue reading “Basics of Financial Fitness”

Insights + Resources >