Tax Words to the Wise.  Year-End Tax Tips for  LGBT Couples at Year’s End. 6 Proactive Financial Planning Tips for Gay Couples to Stay Ahead of the Game, and Keep More of Your Hard Earned Money

By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

Whether you’ve been together for years or decades (or 10 minutes), filing jointly is still new for most LGBT Couples’ taxes.  Marriage Equality–cue the trumpets– means we’re married now! As if filing taxes wasn’t complicated enough,  filing as a married couple may throw off the balance you’ve developed filing separately all this time.

‘Tis the (tax) season for Gay Couples

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 11:59 p.m. on April 15^th   and risk getting shocked by a surprisingly high bill from the taxman 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, Six  Year-End Tax Tips for LGBT Couples:

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 gay financial planner or CPA can squeeze you in for some much-needed guidance and advice.  You also may need to optimize your plan to maximize Social Security as a gay legally married couple. 

(As an LA Fiduciary 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.  I’ve seen many couples able to get thousands of dollars back on previous years’ returns.

3. Give your investment portfolio a checkup

Ask your fabulous fiduciary 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 an additional return on your investments 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 $80,000 for a married couple in 2020) you may want to lock in some of the gains in your portfolio.  We are also looking at some changes coming to Tax Harvesting in the GOP TAX Plan that could cost you a bundle.

4. Be generous especially to LGBT Charities

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.

Part of our commitment to LGBT charities has included completing the AIDS/LIFECYCLE – a 545-mile charity bike ride- from San Francisco To Los Angeles 7 times.

5. Max out your retirement accounts

Want to lower your tax bill?  Do you want to retire someday?  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 is excluded from your income. This means they help 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 $19,500 to a 401(k).  You have until tax time to fully fund an IRA or Roth IRA if you qualify.  That can be another $6000 deduction.  More if you are over 50. If one spouse has been out of work or is a stay home you can now also take advantage of a spousal IRA.  If you are self-employed, consider opening a Solo 401(k) for even more tax savings.

You might also find the article How Love and Marriage will change LGBT Retirement

6. Be smart with your tax deductions

Is your income growing or shrinking? If it’s shrinking, your tax deductions may be worth more this year.  Or vice versa.  You may want to pay some things like your January mortgage payment before the year’s end. This is even more important this year. It will help to push more of the tax 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 the end of the year will see that you can take advantage of all the tax opportunities our newfound marriage equality has to offer.

Also make sure you are away of all the marriage penalties in the US tax code.  These marriage penalties can hit high income gay couple especially hard.

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

DAVID RAE, CFP®, AIF® is the  Los Angeles GAY Certified Financial Planner with DRM Wealth Management. He has been helping people in and around the LGBT community reach their financial goals for over a decade. Follow him on Twitter @davidraecfp on Facebook or via his website, DavidRaeFP.com.

If you are looking for more Year-End Tax Tips for LGBT Couples you may also like:

How the LGBT Community Can Retire Early and Fabulously