By John R. Schneider, III
Since same-sex marriage was legalized, the number of same-sex couples who play Tax Loophole Twister like our straight peers has increased.
We’re heading into tax season and getting a hold of your accountant may be harder than the 2016 election. Here’s the most important question same-sex spouses should ask before filing taxes: Should we file “married and jointly” or “married and separately”?
For most same-sex spouses, this question is new, the difference is considerable and the decision consequential. Here’s what you should know.
Pros & Cons of Filing Jointly
Considering the tax incentives offered to married couples, the government wants people married. (Up until recently, it just wanted the right people to be married.)
First, there’s the marriage bonus. The marriage bonus happens when there’s income disparity between spouses. If it applies, the marriage bonus puts the average income of the couple in a lower tax bracket because of the lower income earner.
Being married and filing jointly offers tax credits that may not apply if you’re married and filing separately. These credits include, but aren’t limited to Credit for Child and Dependent Care, Earned Income Tax Credits and education credits, such as American Opportunity and Lifetime Learning Education Credits. Joint filers also have higher income thresholds for deductions, which means they can qualify for incentives while making more money.
Credits and deductions lower the net total in taxes couples pay. Qualifying for them keeps more of your hard-earned money as income.
Married life and taxes aren’t all roses, though. The con with married and filing jointly is the marriage penalty. Married couples without income disparity can be bumped into a higher tax bracket than when they filed as individuals or if they filed separately.
Filing jointly poses a risk if your spouse has tax problems. If your spouse has tax liens or owes the government money, you may become responsible for their burdens. If you file separately, you’re shielded from such risks.
Pros & Cons of Filing Separately
Certain deductions that require a percentage of your Adjusted Gross Income (AGI) are more easily achieved with the lower AGI from filing separately rather than jointly. For example:
Miscellaneous expenses that are more than 2% of your AGI may be deducted
Emergency expenses over 10% of AGI may be deducted
One of you may qualify to contribute the max for a Roth IRA, whereas jointly neither of you might qualify
However, you’re off the hook for tax liabilities your spouse may have if you file separately. Doing so might shield certain assets from the government.
Going solo isn’t a bed of roses, either. Filing separately lowers deductions for Traditional Individual Retirement Account (IRA) contributions. While it’s good to invest in an IRA regardless, this reduces immediate benefits.
Along with the other tax deductions and credits afforded to couples who file jointly, you can’t take the student loan interest or tuition deduction if you file separately.
If this all sound confusing, that might be the point. Therefore, consult your tax professional.
By John R. Schneider, III
The road of progress is never straight. The queer community has made much progress over the last few years. Even with as much progress as we have made, there are still 28 states in which sexual orientation and gender identity can be grounds for termination without recourse.
Add that some states are making it legal to deny their queer citizens basic services based on religious principles. While the argument has been dumbed down, it is about more than cakes and pizza.
Here are four things more expensive for the queer community and what we can do about them.
1. Having a Family
According to the Human Rights Campaign, private agency adoptions can cost between $5,000 and $40,000. Many same-sex couples must pay for second adoptions, which costs an additional $2,000 and $3,000.
For queer couples who want biological children, the costs are higher, especially if they cannot bear children. Surrogacy can cost between $70,000 to $150,000 per child.
Be clear about what you want. Budget appropriately for expenses and add a 10 percent cushion. Find out if your employer and your health insurance will help cover you chosen option.
2. Long-Term Care
For many older queer people today, a family was not Plan A. Thus they must rely on themselves. The average annual cost for a basic nursing home is about $80,000, according to Genworth's 2015 Cost of Care Survey. This cost can eat up a lifetime of savings fast.
Because the Equality Act is still making its way through Congress, many long-term care facilities do not currently offer sexual orientation and gender identity protections. This limits the number of facilities to which queer people can go for our unique needs.
Ensure your long-term care facility of choice includes policies and training that meet your unique needs.
3. Career Advancement
While open discrimination wanes, soft discrimination remains. Someone who's not part of the "boys’ club" doesn't get the same time and attention of their boss as someone who is.
Neuroscientist and data analyst Vivienne Min did a study that showed gay white men in the U.K. must spend about $54,000 gaining more degrees and experience to keep up with their straight white male peers.
Look for anti-discrimination policies, LGBT ERGs and leadership diversity of companies to which you seek employment.
4. Housing
In some states, queer people can be refused housing because of our sexual orientation or gender identity. Living in more accepting places gives some of us a higher sense of security but usually at a cost.
With the risks of being refused housing, evicted or physically harmed, queer people in these states need larger emergency savings accounts.
It is incumbent for queer people to assess our situation and plan accordingly. Starting a family, choosing a career, planning for retirement and deciding where to live affects everyone. For queer people, such costs are higher and may be prohibitive to our wants and wishes.
By John R. Schneider, III
When I was young, single and fit as a fiddle I got life insurance. By all accounts I didn’t need life insurance. I wanted it to leave a legacy, as my plans of being a pop diva never fully materialized.
I have three nieces. If I passed away, I had nothing to leave to them or anyone. In an instant, poof, there would be nothing left of me. An inheritance to my nieces to pay for college, buy their first home or travel the world (my choice) would be a great legacy.
We often think of life insurance when we start families. The risk of leaving a spouse and children to fend for themselves is a noble concern. However, today’s life insurance does more, even if yours isn’t the typical family.
Protect Your Family
Many queer people getting married now are above the average age of our straight peers for first marriages and because having children for same-sex couples is never a surprise, it can take years to start families. If queer people wait to buy life insurance, we could lose the financial benefits of purchasing less expensive life insurance when we’re younger.
Protect Against Creditors
Debts don’t disappear when we do. Depending on the type of debt you have and your financial situation, your loved ones may have to repay your loans. Don’t expose them to this nightmare. Consider getting life insurance to pay off your debts after you pass.
Leave an Inheritance
If there are one or more people you’d like to leave a parting gift to, life insurance can fund an inheritance. In addition to family members, you can leave an inheritance to any relation such as friends, former partners and foster children.
You may leave this inheritance as a gift for the recipient to spend as they wish or outline provisions on how this inheritance should be used. If Leona Helmsley can leave $2 million to her dog for grooming, maintenance and security, you know the restrictions can be plentiful – and fun.
Give to Charity
You may leave donations to charities, as outlined by your trust, when you’ve passed to ensure those organizations continue. Assign a trustee to your estate to oversee that your donations are distributed appropriately and not a la Evita.
Medical Care
Healthcare can take as much as 30% of one’s retirement savings. Those in the queer community who haven’t saved appropriately need alternatives.
Life insurance can include provisions, such as an accelerated death benefit, that allow for tax-free payments to cover medical care in certain “critical” circumstances. This prevents you from leaving your family with hospital expenses after you pass.
Protect Your Business
If you want to ensure your business continues after you do, list your business or business partner(s) as beneficiaries on your life insurance, especially if your business or business partner(s) rely heavily on you.
The most memorable shows end with great encores. Make yours one.
David Auten and John Schneider are personal finance authors, bloggers
and speakers for DebtFreeGuys.com with over thirty-five years of
combined experience in finance. Their work has appeared in Yahoo Finance, Business Insider, Time, The Christian Science Monitor and Investopedia to name a few. Their show and podcast, Queer Money,
is the only show talking about the financial nuances of the LTBTQ
community. Their mission is to build a financially strong queer
community.
By John R. Schneider, III & David Auten
Fifteen years ago, the two of us met at the old Tracks. We were in our late-20s, early-30s and just entered our peak social years. We were liberated, as were many gay men in those days. The bullying of our high school days was far behind us.
As gay kids, we didn’t have the dating and social experiences at the same ages as our straight friends. While we may have pretended, even convinced ourselves, that we wanted girlfriends, those relationships were never going to end well. Dating during high school, while awkward for all, was uniquely awkward for us as gay kids.
Like many people, the two of us sought the validation we didn’t get in school as kids from stuff we couldn’t afford as adults. We bought new cars with six+ year terms and no down payments. We covered every square foot of our home with Pottery Barn furniture purchased at the Cherry Creek store with credit cards. We always had the newest Diesel clothes and latest phones even though we rarely had the cash to pay for them. We spent way more time at the gym than we ever did on a budget.
Despite having had thirteen years of combined experience in financial services when we met on that gay disco dance floor, we had over $51,000 of combined credit card debt. A year and a half later, we were living in a basement apartment in Capitol Hill and not living the life of our dreams. David nickel and dimed himself. John spent big. This combination proved to be a cocktail of financial failure and unhappiness.
When we realized the gravity of our financial situation, we ignored our debt like a drunk uncle, worried about it like Woody Allen, talked about it like Oprah and were overwhelmed by it like the Broncos in Super Bowl XLVIII. We ultimately gained the Michael Phelps-like focus that led to us becoming debt free.
As life-partners, we’re now debt free. As business partners, we’re The Debt Free Guys. We combine our personal and professional experiences with money to help others live debt free, have fun and be money conscious through our blog, books, public speaking and writing for publications and sites such as MileHighGayGuy.
We also host the Queer Money Show, which is a podcast and YouTube show. On Queer Money, we discuss the financial nuances of the queer community. Our mission is to build a financially stronger queer community, so that queer people can become leaders in the general community, continue our fight for equality and live our best lives.
Similarly, here on MileHighGayGuy.com, we’ll discuss investing, financial planning and all things money. We’ll mix the serious with the fun and always give you value that makes your investment with us worthwhile. We invite you to come back to our column regularly to be inspired to live a successful, money conscious life.
