What Tax Tips for Domestic Partners Do You Need to Know Come Tax Time?
What are the Domestic Partner Tax Laws?
There has been a lot of argument in contemporary society about equalizing tax laws for domestic partners. No matter what your state’s current laws are, you can benefit from learning about tax tips for domestic partners. You will want to check your tax law, as it often varies by state. For examp
le, California allows domestic partners to register, and registered domestic partners are eligible for the same tax benefits as their married counterparts. To register as a domestic partnership, either both members of the couple must be of the same sex, or one or both individuals must be over the age of 62. Additionally, according to the Franchise Tax Board Publication 737, the following criteria must be met:
- The partners share a home
- No other marriage or partnership exists
- There is no blood relationship
- Both individuals are at least 18 years old
- Both individuals gave legal consent to the partnership
Other states allowing for the recognition of domestic partnerships include: Oregon, Maine, Colorado, Maryland, District of Columbia, Nevada, Washington, Wisconsin, Massachusetts, Iowa, Connecticut, Vermont, and New Hampshire.
The most important of the tax tips for domestic partners and the completion of filing their taxes is to know your tax laws. While you cannot file joint federal tax returns, you may be able to file jointly at the state level. This allows you to take the same state tax advantages as you would if you were filing taxes as a married couple. If you have a state that recognizes domestic partnerships - register! That way you can take advantage of any of the advantages you will get in your state.
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Declare a Partner as a Dependent
Does your partner stay at home and take care of the children? Has he or she been out of work for more than a year? If the partner who is not working has been living in your home for more than a year, and you support your partner financially, then you may be able to claim your partner as a dependent. If your partner did not make enough to need to file taxes, this could be an option.
File as Head of Household
This only applies if you provide the support for a biological relative or an adopted child. You cannot file as head of household even if you are able to declare your domestic partner as a dependent unless you are caring for your biological parent or child.
Be Strategic When Purchasing Assets
It’s so important to put together a financial plan with your domestic partner. When you do this, you can strategically tackle the acquisition of joint assets. Here are some things to keep in mind:
- Investments in bonds, stocks, etc. are best made by the partner in the lower income tax bracket.
- If you purchase a home together, the partner with the higher income should deduct the mortgage interest.
- Any charitable donations made by the domestic partnership should be donations made in the name of the higher wage earner.
- Be aware that medical expenses for your partner are not deductible unless you have added your partner as a dependent.
- When selling a home, you are only exempt for up to $250,000, not the $500,000 allotted to married couples - even if your state recognizes you as having similar status for state taxes.
- When it comes to estate tax or gift tax, be aware that you will not qualify for the exclusions allotted for married couples. Make sure you understand the laws when it comes to providing your partner with large sums of money before you do this.
When in Doubt, Seek a Professional’s Help
Finally, in the event that you or your partner own a business, there are children, or it is your first year in a domestic partnership, you may wish to seek out a CPA or tax accountant’s help; otherwise, you may be able to file taxes on your own or using tax software. When looking for an accountant, check their background to see whether or not he or she has expertise and experience with domestic partnership taxes.
State of California Franchise Tax Board (2010) Publication 737: Tax Information for Registered Domestic Partners. Accessed 1/31/11 at https://www.ftb.ca.gov/forms/2010/10_737.pdf.
McCormally, K. (Jan., 2009) “Tax Savings for Domestic Partners.” Kiplinger. Accessed 1/31/11 at https://content.kiplinger.com/features/archives/2008/01/domestic-partner-joint-tax-returns.html.