Crunch Time is Coming for California Gays


No, we’re not talking abs, we’re talking taxes. What do you do if the state you live in affords all of the financial benefits of marriage to gay couples while the federal government still doesn’t? That’s the position the nearly 71,000 Californians have found themselves in this year come tax time.

The thorniest issue centers on the basic question of how to report income on a federal tax return. For example, if one partner earns $100,000 but a stay-at-home partner earns nothing, are they now entitled to report $50,000 of income on their individual returns? If the stay-home partner’s $50,000 share isn’t considered income, is it a taxable gift — or something else?

Domestic partners can’t assume they’ll be safe simply reporting income separately, the way they did before the state law took effect, some experts say. If the IRS decides to treat domestic partners more like married couples, some could find out later that they owe taxes because they weren’t entitled to tax breaks they claimed.

“It’s so bad that I don’t know if I’d be able to file a return for these folks,” said Kathleen Wright, a Bay Area tax attorney and professor at San Jose State University. She and others recommended filing for an extension, in hopes that the IRS will clarify the rules.

Basically, the answer from the IRS is ‘we have no idea.’ In the meantime, California’s married gays are left wondering what to do. And trust us, Turbo Tax is no help with this – we already tried.

Domestic partners stuck in tax-return limbo
[Mercury News]