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For the first time, the Internal Revenue Service will recognize joint tax returns for same-sex married couples. For some, that means lower tax bills and reason to celebrate progress following the Supreme Court’s ruling striking down the federal gay marriage ban. But for other couples living in states that still don’t recognize gay marriage, the April 15 deadline is creating huge paperwork headaches. We explore some of the tax pitfalls facing same-sex couples and answer your questions as tax day approaches.
- William Caldwell Certified Public Accountant; CEO, Caldwell & Company
MS. CHRISTINA BELLANTONIApril 15th can cause angst for even the most organized taxpayer. But if you're in a same-sex marriage, the headlines about filing taxes this year are a little scary. The Atlantic calls it, "total chaos." CNN dubs it "a nightmare." And the New York Daily News has been declaring that these are taxing times for same-sex married couples. Bad puns aside, Tuesday will represent both progress and paperwork headaches for many married gay couples.
MS. CHRISTINA BELLANTONIFor the first time following the Supreme Court's decision to strike down the federal gay marriage ban, same-sex couples will be able to file joint federal tax returns, taking advantage of marriage credits and potentially lower tax bills. But woe to the couples who live in states that still don't recognize their marriage. For them the paperwork is piling up. What pitfalls are these couples facing? Are gay couples really closer to equality in the eyes of Uncle Sam?
MS. CHRISTINA BELLANTONIAnd what tax hurdles are you facing this season? To help us unpack all of this we're joined by certified public accountant, Bill Caldwell, the CEO of Caldwell and Company, in Bethesda, Md. Thanks so much for being here, Bill.
MR. WILLIAM CALDWELLGood afternoon.
BELLANTONISo as we approach the tax deadline, what kinds of tax questions are you hearing from same-sex couples specifically a week ahead of the deadline?
CALDWELLWell, we have a fairly large practice with same-sex couples. And they've sent -- we've spent a lot of time with them this year getting ready for filing their first joint return. So, you know, none of them have ever -- rarely very few of them have ever filed joint returns before. So they wanted to get acclimated on what they needed to do to be ready. And then we've spent some time, after the returns are finished, going over with -- going over them with them.
CALDWELLAnd, you know, there's just been a lot of questions and a lot of curiosity about what things are deductible or why they're losing deductions or why their tax has gone up in some cases, or I guess in most cases, why they're paying -- actually paying more tax now than they were filed single. And of course the Virginia taxpayers are really befuddled because they're being forced to file single for Virginia purposes, but married for state purposes. So it's taking a lot of additional time for the Virginia returns.
BELLANTONIIt sounds really complicated, probably cost people more money to have to deal with this issue and figure out what paperwork they need to fill out and when. What are the consequences if they fill out the wrong forms?
CALDWELLWell, the consequences are one of a couple things. A, they could wind up paying more tax. Or, B, that Virginia will turn around and reject the returns or turn around and audit the returns because they're not tying to anything that -- any data that Virginia is getting.
BELLANTONINow, there are 17 states, plus the District of Columbia, that allow same-sex marriage currently. Thirty-three states have different sorts of limitations on it. Virginia is obviously tied up in a legal battle. You've got the new attorney general attempting to overturn their ban on it. It's also a pretty strict ban. It also bans civil unions for same-sex couples. So how do you determine if somebody comes in, you figure out, you know, obviously, where they live, where they're earning money. Does it matter where their job is versus where their residence is?
CALDWELLNot in the immediate area that we're dealing with primarily being D.C., you know, Maryland and Virginia. There's a treaty between the jurisdictions so that if you live in Virginia, but work in D.C. you're still -- you only file a D.C. return. And this is for if you're getting W2 income and interest and dividends and that kind of stuff. But if they have businesses in other states where they own a business, then yes, you've got multiple things going on here.
BELLANTONIA lot of factors. Now, the difference between filing married -- married filing together and filing as a single person is a pretty wide difference in how much you are taxed, right? I mean, how much money are we talking about here?
CALDWELLWell, it depends on, you know, the filing single, of course, it's just your income. And now when you're in a same-sex marriage and you're adding your spouse's income on top of that, depending upon how much income each one of them would make, you could be paying significantly more income taxes then were you single added together.
BELLANTONIAnd it makes it harder to budget, I would imagine. You can't just pay estimated taxes if you're not sure whether your state's going to be charging you single or married.
CALDWELLRight. Especially in Virginia this year because it's so in flux.
BELLANTONIWe're talking with Bill Caldwell of Caldwell and Company, in Bethesda, Md., ahead of tax season. So tell us your experience. Are you in a same-sex marriage or do you know someone experiencing headaches with filing taxes this season in some of these states where there are big legal questions? You can give us a call at 800-433-8850. Send a tweet to @kojoshow, email firstname.lastname@example.org or get in touch on our Facebook page.
BELLANTONIAgain, I'm Christina Bellantoni, editor-in-chief of "Roll Call," sitting in for Kojo. So usually when you file state returns you just use what's on your federal returns to fill out the forms. So what does this mean for the actual filing and are you training the people at your firm to be able to navigate this train?
CALDWELLBecause we have such a large practice in this area, we've started training on this actually last June when the decision came down. And then when the IRS came out and said that, you know, they would allow the joint filers. One of the things that was new for 2013 was -- with this decision, is it allowed same-sex couples to go back a couple of years and amend their returns to file jointly if it turned out that was beneficial for them. So we spent the bulk of the fall going through all of our files and seeing whether that was indeed beneficial for our clients.
BELLANTONISo how many states does that affect?
CALDWELLThat would affect 17 of them.
BELLANTONIWow. So -- and are you seeing where that would be a benefit? I mean is that going to cost the federal government a bunch of money? How does that work?
CALDWELLIt turned out to be not a huge benefit. About 25 percent of our clients actually it worked in their favor to go back and amend their prior year's return, which means that 75 percent of them it didn't -- it wasn't in their favor. Which means that now that they're required to file a joint return, they're actually -- 75 percent of our clients are paying more tax than they were when they were -- than before the rule came down and they were filing single.
BELLANTONISo -- and some states don't recognize same-sex marriage, but they're letting couples choose how they want to file. So that's Colorado, Missouri, Oregon, Utah. How are you seeing that affect things? Is that another issue that you're looking at?
CALDWELLWe have a few couples in those states. So that we just had to go back and just -- and we created a grid so that could know who needed what.
BELLANTONISo -- and, of course, in Utah it's an interesting situation because gay marriage was legal for 17 days in 2013 and 2014, but then a federal judge ruled the state's ban on gay marriage was unconstitutional. The Supreme Court put a hold on it. So that left 1,300 same-sex couples who got married during that time in legal limbo. So there's political controversy here, as well.
CALDWELLYes, it certainly is.
BELLANTONIHow often is it that politics are affecting the nuts and bolts of the numbers of your business?
CALDWELLWell, it affects it every day. I mean in that if you look at the tax code, it's a very political document. And it's meant to encourage taxpayers to do things and discourage taxpayers from doing things. So it's all politics.
BELLANTONIDoes marriage always benefit you at tax time? I mean what factors determine whether you have somebody file married filing jointly or separately or as single?
CALDWELLIt's really kind of a unique circumstances where if you're a couple that you're filing married filing separately. And those kind of circumstances would be where one partner makes significantly more than the other partner. And the partner who doesn't make very much has large amounts of itemized deductions or large amounts of medical expenses or those kind of things.
BELLANTONIHow does civil unions affect this or not affect it?
CALDWELLIt affect -- for those states that allow for civil unions, then it's treated just as if it was marriage and we're dealing with it just as you -- if you were married.
BELLANTONIWhat about -- so the president has made some executive orders affecting different status of couples for federal contractors and federal employees. So does that matter where they live? I mean are you literally looking at whether people work for the federal government? And then if they are allowed to file married, even in a state that does not recognize their marriage?
CALDWELLNo. The state law's going to trump on those decisions.
BELLANTONIAnd then just turning to April 15th in general, how busy is your firm right now? You had time to come down to talk to us, which we're very grateful for. But is this -- are people procrastinating in doing their last-minute filing?
CALDWELLYes. And they always do. And -- but I have an excellent staff, so it allowed me to do this. And so I thank them. But, yeah, we still have people come in the door and they haven't brought in their materials yet, but people already had a cut off so that everybody's going on extension who's coming in now.
BELLANTONIAnd is there a benefit to waiting until April 15th to file your taxes, let's say if you owe money?
CALDWELLWell, you're required to pay the money by April 15th. So even if you go on extension, you're still required to pay the amount of money that you think you're going to owe. So the IRS is going to get their money by April 15th one way or the other.
BELLANTONISo tell us, if you have general questions about taxes this year, ahead of Tuesday's big deadline, give us a call at 800-433-8850, send a tweet to @kojoshow or email email@example.com, and tell us, do you always file your taxes before the April 15th deadline or are you a serial procrastinator? I did put mine in the mail, I will admit. So I feel okay about it this time around.
BELLANTONIWe're going to be right back. I'm Christina Bellantoni, sitting in for Kojo Nnamdi. We'll return to our conversation about tax day in just a moment.
BELLANTONIWelcome back. I'm Christina Bellantoni, editor-in-chief of Roll Call, sitting in for Kojo Nnamdi today. And we're talking about tax season with Bill Caldwell, the CEO of Caldwell and Company in Bethesda, MD. He's a certified public accountant and he's taking your questions about tax day and also the big legal thicket that same-sex are wading through this year given the difference between federal and state law on taxes.
BELLANTONIGive us a call at 1-800-433-8850. Send a tweet to @kojoshow or email firstname.lastname@example.org. So, Bill, we were talking just a moment ago about people who who've never filed joint returns before and the unusual circumstance that is and add to the fact, what if you have children and you're a same-sex couple. How does that work?
CALDWELLWell, having children and adopting children has been a complexity that has greatly frustrated a lot of our same-sex couples. And up until last year in the past, if one of them had a child and the other one adopted, their partner adopted a child, then the partner was entitled to a federal tax credit for adoption expense, the adoption expenses they paid. Now, under -- filing a joint return, that partner in exactly the same scenario is no longer eligible for that adoption credit.
CALDWELLSo a lot of times and several times even, an adoption started in 2012 and didn't finish until 2013. And when they started in 2012 they thought that they were going to be able to get a credit for their expenses. And then it turns out that just because of the timing of calendar, how long it took, they were no longer entitled to it.
BELLANTONISo we have a caller joining us from Tysons Corner, VA. Please -- thank you very much for giving us a call. You have a question about the IRS?
SHANKARAh, yes. This is Shankar (sp?) and my question actually relates to the very frequent calls that seem to be happening now, which are scamming calls, people claiming to be IRS investigators and claim debts from the crime division. I had a call like that happened just about 20 minutes ago. A person with a very funny accent claim that he was IRS agent from the crime division and tried to give me an ID.
SHANKARAnd then actually what was unsettling was, he knew my name, my wife's name, and our records and, you know, so I hung up on the person but I thought this is something that you and your guest might want to talk about.
BELLANTONIThank you very much for raising that. So, fraud, we hear a lot of scams and fraud calls this time of year?
CALDWELLYes, we do. In fact, fraud is a huge issue with the IRS and accounts for hundreds of millions if not billions of false refunds being given out each year. And we deal with that issue several times a year with our client base that someone has stolen their identity and already filed return and received the refund back that was supposed to be for our clients.
CALDWELLSo, as far as the phone calls and the scamming, I've never heard of the IRS calling a taxpayer where they hadn't first followed up with a letter. So if you're getting a call from the IRS, I'd be very suspect to it if you didn't already know that you had an IRS issue.
BELLANTONISo, and actually a recent report by the National Taxpayer Advocate said that calling the IRS for help with your taxes is a bad idea. In 2013, more than a hundred million calls were placed to the IRS, nearly 20 million of them went unanswered. Do you recommend your people give the IRS a call?
CALDWELLNo. That's why they hire us. And so, we try to avoid that at all costs.
BELLANTONIAnd communicating in writing sounds like it's a smart first step for people.
CALDWELLIt is, it is.
BELLANTONISo I will point out, we asked the IRS to join us on "The Kojo Nnamdi Show" today, but they declined to be a guest. So we have an email from Sarah. She emailed email@example.com asking, "I'm an elementary school teacher in my first year of teaching. I've spent a lot of money on school supplies. What kind of education tax credits are available to me this year?"
CALDWELLThe education deduction is still available and it was renewed as part of the last tax bill, which enables Sarah to take a $250 tax deduction on page one of her return. But even if she has expenses far in excess of that, she's only entitled to deduct 250. They say that the national average of teachers spends -- each teacher spends on average $450 on school supplies out of their pocket. But with our client base and what we've seen, that number is really far higher. But there -- irrespective of how much money you spend, you're only entitled to take a $250 deduction.
BELLANTONIAnd what if you've donated to a school and you've decided to give some old books or crayons to your child's teacher?
CALDWELLIf it's just to the teacher like that, then it would not be a deduction. If you've gone through the school and you've got a receipt from the school, then you're able to take that as a charitable contribution.
BELLANTONIWe have a question from Jan in Denton, Md. Jan, you're question for Bill Caldwell. Thank you very much for joining us.
JANHi Bill. My question is this, I -- in 2015, my husband is going to file (unintelligible) for Social Security benefits and then I'm going to file for half of his Social Security. It looks like this year, it seems there's quite a bit of money to file separate returns because he has -- he's working and has a relatively high income and I work odd jobs and have a low income. Will filing separately affect our ability to file and suspend -- my ability to file and suspend for his Social Security?
CALDWELLNo, it won't affect it at all. So if you're filling -- a married filing separate return because you've done the math and the numbers and that's more advantageous to you, then you should go ahead and do that and with the knowledge that that will have no effect come Social Security time when you're applying for it in 2015.
BELLANTONIAnd another question from Jeff in Reston, VA. Hi Jeff, thanks for joining us.
JEFFHello. A similar call -- last year I was unemployed the full year, 2013. But we did -- my wife and I did start a small LLC. The question really, I guess, I've changed my question slightly. If she is a legal part of the LLC, can we file separately? Because her normal job income was substantial where mine was nothing, and the LLC didn't make any money. So technically there are lots of expenses to the LLC with no revenue.
CALDWELLI understand. You would -- you'd really need to do the numbers on this because if your LLC has a loss and you're filing a joint return and that lost is going to be sheltering your wife's income in a much higher bracket than it would be sheltering yours or you might not even be able to use it. So it might make sense to file jointly in this case.
BELLANTONIInteresting. Thank you, Jeff, for that call. So -- and thank you, Bill Caldwell, for this. If you have more questions, give us a call at 800-433-8850. Send a tweet to @kojoshow or email firstname.lastname@example.org. Patricia in Gaithersburg has a question for Bill Caldwell. Thanks for calling, Patricia.
PATRICIAThank you for having me. I actually have two questions. The first is that I lost my husband at the end of last year.
BELLANTONISorry for your loss.
PATRICIAAnd I'm not -- thank you. I'm not sure what it does to -- how to file that. I don't know what to do with that. Obviously, we had his income all the way through December from Social Security and that's our primary income. But I don't know what to do with it from there. I don't know how to deal with it. And the second one is similar to that. Last year, we received a payout from a pension fund we didn't know that we had.
PATRICIAAnd so they paid us everything back to the time he retired. And we wound up with $20,000 extra. And I'm wondering if I can still do income averaging on that or if they've taken away the income averaging and account this to deal with this unexpected one-time benefit, if you will.
BELLANTONIThank you, Patricia. Bill Caldwell.
CALDWELLPatricia, I too am sorry for your loss on this. You will go ahead and file a joint return for 2013. On it you'll need to mark your husband's date of death. And so all of the income through his date of death needs to be included with your income on that 2013 return. There is no income averaging anymore. The IRS eliminated that many years ago except for some very special farm subsidies kind of things.
CALDWELLBut as far as your pension windfall this year, hopefully there was withholding being withheld from it, federal and state tax withholdings, so that you will -- yes, you'll have to include it on your income, but also at least you'll have the taxes already paid for your withholding. If there was no withholding on it, then you're going to be short and you'll probably need to, unfortunately, write a check with the filing of the 2013 return next week.
BELLANTONIChris in Laurel, MD has a question for Bill Caldwell. Hi, Chris, thanks for joining us.
CHRISThank you. Same-sex couple and for the first time we could file together but it was in our benefit to file individually, separately. Just concerned about the long-term impacts as far as Social Security benefits and is there anything else I would need to be aware of?
CALDWELLUnderstand. There is no long-term benefit or detriment to married filing separately versus married filing jointly. You can make that decision every year and you make that decision on whatever is going to result in you paying the least amount of federal taxes. Social Security, now that you're married, is going to work just like every other married couple in that if your spouse has a higher income than you, then after 10 years and been married for 10 years you're able to claim one half of his benefit.
BELLANTONIWe're getting another question about how health care and tax season are linked. So obviously we have the Affordable Care Act going into effect, whether or not they will enforce the individual mandate is still an open question, is it not?
CALDWELLI mean, from everything that we're reading right now, it's not an open question. I mean, the IRS and the government is saying that they will enforce. Now, that enforcement won't go into place until the filing of the 2014 return. So if there's any penalties, you won't be paying those penalties until 2014. But as of right now, you know, that's the rules and that's what we're advising our clients on.
BELLANTONISo on "Morning Edition" today, NPR explored some improvements that could be made during open season for federal health exchanges. One idea was creating a new custom window for open enrollment around tax season. So how do you see this affecting things?
CALDWELLWell, so far, it hasn't really affected the 2013 returns with the exception of high income taxpayers are now having to pay an additional tax on their wages and all of their investment income. And we're seeing that those are fairly substantial amounts of money.
BELLANTONISo just to follow-up, we had one of our callers asking about a recent scam involving people claiming to be IRS employees and demanding personal data, there have been reports actually that these scammers are primarily targeting recent immigrants, especially South Asian business owners who are perhaps less familiar with tax laws. So in an international region like Washington, D.C., do you find that people who are not originally from United States need more help to navigate the system?
CALDWELLI think, generally, that's a fair statement that when you've grown up in the tax system and you're used to your parents paying it and hearing about it, so that's -- the complexity of it is baffling for a lot of new immigrants or a lot of new taxpayers.
BELLANTONIAnd now we have a question from Elise (sp?) in Herndon, VA. Elise, thanks for joining us.
ELISEThank you for taking my call. I decided that I just can't handle my taxes and my husband's and my college daughter's taxes this year. It's gotten crazy and I would like some information on how to find a good CPA and how much it's going to cost me.
BELLANTONIC-a-l-d-w-e-l-l, right? Just kidding. Bill Caldwell, you have a good advice for Elise?
CALDWELLTalk to your friends. I think that most CPAs get referrals from people that they know in similar types of situations. And so, talk to your friends and see who they use. You can go to the internet in your area, too. Most CPAs have an internet presence and you can get a flavor of who they are and what they do and what they charge from their websites.
BELLANTONII also would always recommend social media. You know, you can use Facebook to sort of ask people for recommendations. Sometimes they can even directly link you with the people. And speaking of social media, you can always get in touch with us using Twitter to sending a tweet to @kojoshow, getting in touch with Kojo Nnamdi Facebook page, send an email to email@example.com or just pick up the phone and call us at 800-433-8850. We have an email from Hasan (sp?) saying, "I just started an LLC and I'm wondering what tax deductions I can claim for this? Bill Caldwell.
CALDWELLWell, if you've just started an LLC, that means that you're in business doing something. So you're going to need to be able -- you'll be able to claim all the tax deductions relating to that business, which would include the organizational cost of forming the LLC as well as whatever you've done from a business purpose and wherever you've spent cash and spent money.
CALDWELLAnd those would all be included on a schedule C now since you're -- I'm assuming you're a single member LLC. And as you know, a single member LLC does not file its own tax return. But rather, it's included in your personal return.
BELLANTONISo, finally, it might seem like faraway politically, but back in October we had a 16-day partial government shutdown here in Washington. How did that affect tax filing? Are refunds on track? Are you seeing any residual effects from that?
CALDWELLThere was an immediate residual -- there was immediate effect in January in that the IRS was not allowing you to -- they weren't accepting electronically filed returns until, I believe, the 29th of January. So the people who were generally I early, get their W2 early, file their tax return in the first couple of weeks of January to get their refund were not able to do that.
CALDWELLIf you were filing a paper return, the IRS wasn't even opening up the envelopes until after the 29th because their software wasn't ready as a result of the delay of the government shutdown. But now it seems to have worked through that and we're seeing refunds coming in in an average of two to three weeks.
BELLANTONIAnd that's about standard.
CALDWELLAnd that's about standard.
BELLANTONIOkay. Any last-minute advice you'd give? We've got about a minute left here. Again, this is Bill Caldwell, the CEO of Caldwell and Company in Bethesda, MD. Tax day is Tuesday. Final thoughts?
CALDWELLDon't be afraid to take the deductions. We run into a lot of people who are entitled to take deductions, but they're fearful that this is going to cause a red flag. If you spent the money and it's a legitimate deduction, don't be afraid to take it.
BELLANTONISound advice. Bill Caldwell, CEO of Caldwell and Company in Bethesda, MD. He's a certified public accountant. And thank you very much for joining us for this segment on the twist on tax season. It's been very helpful. Again, I am Christina Bellantoni sitting in for Kojo Nnamdi. And coming up in the next hour, we're going to have a discussion with Carla Hall, a local chef and somebody that people will remember from "Top Chef."
BELLANTONIAnd we're going to talk about family traditions, her new cookbook and everything that could be in your heart's content. You can stick around and make sure to give us a call at 800-433-8850. Again, I'm Christina Bellantoni, editor-in-chief of "Roll Call," sitting in for Kojo Nnamdi.
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