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Understanding the Adoption Tax Credit

February 25, 2014 By Guest Contributor


By Megan Asselin, CPA and Abigail Stokes Palsma

In most cases, taxpayers, whether single, registered domestic partners, or married couples, are eligible to claim a tax credit on the federal tax return for the expenses related to the adoption of a child. For the 2013 federal tax return, adopting families are able to claim qualified expenses up to $12,970. Additionally, families who adopt a child from a California Public Agency are eligible for a credit on their California tax return for 50% of qualified costs up to $2,500 per child.

The application of the federal credit varies based on whether the adopted child is in the foster care system, is a domestic child, or is a foreign child. The credit is not allowed when adopting a spouse’s child, however, there is an aggressive tax strategy that some may find helpful. Additionally, there are specific instructions for both the federal and state credits regarding how to claim expenses that occur over multiple years.

Basic Rules for the Adoption Credit

When adopting a child, it is important to keep track of all qualified expenses related to the adoption process. Qualified expenses as defined by the IRS include court costs, attorney fees, traveling expenses (including amounts spent for food and lodging while away from home), and other expenses directly related to the adoption of an eligible child. An eligible child as defined by the IRS, is any child under the age of 18 or any individual who is physically or mentally unable to care for himself.

On both the federal and California tax returns, qualified expenses are documented so that the taxpayer can receive a credit, which lowers the amount of taxes owed. Because the IRS and the California Franchise Board are two different taxing authorities, the same expenses can be claimed on both returns. Yet, because California offers the 50 percent credit only to those who adopt from a state agency and adoption fees are generally waived or very low for these types of adoptions, many adopting families do not receive a significant credit on their California tax return.

The tax credit is nonrefundable, which means that it is used only to decrease the total amount of taxes owed in a particular tax year. However, if the credit is greater than taxes owed, it can be carried over for up to five years on the federal return and until it is used on the California return. If that occurs, the taxpayer can use the tax credit against the tax liability in the subsequent year(s).

Adopting a Foster Child

While domestic and foreign adoptions can both be very expensive, adopting a child from a foster system is typically more affordable. In fact, state and county governments as well as qualified foster care placement agencies provide financial assistance for foster parents who are adopting the child(ren) in their care. Payments of this kind are generally excluded from the family’s income.

Regardless of the amount an adopting family spends, many foster adoptions qualify for the maximum credit if the child is defined as “special needs.” This does not mean that the child has physical or mental disabilities, but rather that he or she meets specific criteria, which might vary by state. In California, a foster child is considered to have special needs if she meets one of the following criteria. The child is/has:

  • Three years of age or older,
  • A race, ethnicity, color, or language that is a barrier to adoption,
  • A member of a sibling group that should remain together,
  • A mental, physical, emotional, or medical disability certified by a licensed professional, or
  • A parental background of a medical or behavioral nature that can be determined to adversely affect the development of the child.

For the California credit, the child must be a U.S. citizen and must be adopted from a California public agency (state, county, or city). Private adoptions and adoptions through a charitable organization do not qualify for the credit.

Case study: Mark and Larry are foster parents for a sibling group of two young children. Their charity-based foster agency provides monthly assistance payments, and now that they have decided to adopt the children, the payments have increased. Sibling groups qualify as “special needs” in a foster adoption. Even though Mark and Larry have received assistance from their agency and the costs related to the adoption process were relatively low, they are still able to claim the maximum adoption credit on their federal tax return for both children because of the children’s “special needs” classification ($12,970 x 2 = $25,940). In the tax year that Mark and Larry adopt the children, the potential credit available to offset their tax liability is $25,940. Because they adopted from an agency that is not a California Public Agency, they are not eligible for a credit on their California tax return.

Adopting a Spouse’s Child

As previously stated, the tax credit is available to be claimed when adopting an “eligible child.” The IRS definition of eligibility excludes the child of the taxpayer’s spouse. Certainly, a taxpayer may adopt his spouse’s child, but he will not receive a tax credit for related expenses. However, there is an aggressive tax strategy that some might find useful.

If the adoption is finalized prior to the marriage, but both the adoption and the marriage happen in the same tax year, the taxpayer can claim the credit. In this case, the child was literally not the child of the taxpayer’s spouse at the time of the adoption, making the child legally “eligible.” This could be confusing, if you are aware that the IRS considers married at any point in the year as married for the entire year. However, this provision only applies to certain Codes, such as the definition of a dependent and rate schedules. It does not apply to the adoption eligibility status of a child.

Caution: If a couple claims the adoption credit in the same tax year they are married, the IRS may perform an audit to verify that the adoption occurred before the marriage. Be prepared to provide documentation of both events should the IRS question the return.

Case Study: Marcia and Jane have been Registered Domestic Partners for five years. Jane has a ten-year-old daughter from a previous marriage, and Marcia legally adopted her in early 2013. After DOMA was overturned in 2013, Marcia and Jane decided to marry before the end of the year so that they could take advantage of the tax benefits married couples are eligible for. In order to receive the adoption credit, Marcia and Jane must file their federal tax return jointly, even though this draws attention to the fact that Marcia has adopted Jane’s child. The couple has kept clear records to show that the adoption was final several months before they married. Marcia and Jane do not use the same strategy for their California tax return. Even before DOMA was overturned, the State of California allowed for Registered Domestic Partners to file their state tax return jointly. In the eyes of state laws, they were provided the same tax benefits as married couples, including credits associated with dependents. Therefore, Marcia and Jane’s income has already been adjusted to account for costs associated with raising Jane’s daughter. Even if that weren’t the case, Jane’s daughter was not adopted from a state agency, so no state-based adoption credit is available to the two moms.

How to Claim the Federal Credit when Expenses Span More Than One Year

The federal adoption credit is limited to $12,970 in 2013 for each adoption effort. If costs for the same adoption effort occur in multiple years, the dollar limit for the subsequent year must be reduced by the amount claimed in the previous year. In other words, the most a family can claim for an adoption is the maximum amount allowed, whether all of the costs were incurred in the same year or multiple years. In the Instructions for Form 8839, Qualified Adoption Expenses, the IRS published the following charts that clarify when to claim expenses. A domestic adoption refers to the adoption of an eligible child who is a U.S. citizen. A foreign adoption refers to the adoption of a child that is not yet a citizen or resident of the U.S.

Domestic Adoption

IF you pay qualifying expenses in… THEN take the credit in…
Any year before the year the adoption becomes final The year after the year of the payment.
The year the adoption becomes final The year the adoption becomes final.
Any year after the year the adoption becomes final The year of the payment.
IF your employer pays for qualifying expenses under an adoption assistance program in… THEN take the exclusion in…
Any year The year of the payment.


Foreign Adoption

IF you pay qualifying expenses in… THEN take the credit in…
Any year before the year the adoption becomes final The year the adoption becomes final.
The year the adoption becomes final The year the adoption becomes final.
Any year after the year the adoption becomes final The year of the payment.
IF your employer pays for qualifying expenses under an adoption assistance program in… THEN take the exclusion in…
Any year before the year the adoption becomes final The year after the year of the payment.
The year the adoption becomes final The year the adoption becomes final.
Any year after the year the adoption becomes final The year of the payment.


For eligible California adoptions, the credit is available in the year the adoption becomes final. Expenses that were incurred in the prior taxable year can only be included in the computation of expenses in the year the adoption was finalized.

Case Study: Jack and Jill are adopting a domestic baby through a private adoption agency. They spent $3,970 in legal fees in 2012, but the adoption was not final, so they cannot yet claim the expenses on federal tax return. Because the agency is private, they are not eligible for the California credit. In 2013, they expect to pay an additional $12,000 to finalize the adoption. When they prepare their 2013 federal tax return, they may claim only the maximum $12,970, even though they spent a total of $15,970.

Case Study: Mike and Sue are adopting a foreign baby. They began the process in 2011, when they paid initial fees to the agency. They continued through the process and incurred the bulk of their expenses in 2012. They brought the baby home and finalized the adoption in 2013, incurring expenses for travel, as well as the final attorney, agency and court fees. Mike and Sue report all eligible adoption expenses incurred from 2011 to 2013 on their 2013 tax return and apply the $12,970 maximum credit to reduce their tax liability that year. Since the baby is not a U.S. Citizen, Mike and Sue cannot claim the California tax credit.

Case Study: George and Anthony adopted a foster baby through the Los Angeles County Department of Children and Family Services. Assume that adoption costs through this governmental entity are waived. Therefore, there is no credit to claim on the California tax return. However, because the foster baby fits the definition of “special needs,” George and Anthony are able to claim the maximum credit on their federal tax return, or $12,970.

Employer Adoption Assistance Programs

As noted in the preceding IRS charts, there is a second tax benefit available to adopting families who receive assistance through their employer’s adoption assistance programs. When an adopting family receives assistance through such a program, the amount received reduces qualified expenses and is also excluded from the gross income.

Case Study: Jennifer is adopting a domestic baby. Her employer pays $3,000 of her attorney fees through an adoption assistance program. When she files her federal tax return, she must reduce the amount of the qualified expenses by $3,000. This amount will also be excluded from her gross income since this is an employer benefit that is not taxed and has already been applied to the qualified expenses.

For more information about the adoption tax credit or to schedule a free 30-minute consultation, please contact Megan Asselin at or 626-857-7300, ext. 309.

Megan Asselin, CPA is a Senior Manager at Vicenti, Lloyd & Stutzman LLP in Glendora, specializing in tax, audit, and general accounting services. Abigail Stokes Palsma is the Knowledge Manager for Vicenti, Lloyd & Stutzman. An earlier version of this article was published in February 2014 by Bienvenidos,


Gov. Brown Signs Law Making Accurate ID Easier for Transgender Californians

October 8, 2013 By Josh Steichmann

ab 1121It just got a little bit easier (and cheaper) for transgender Californians to live authentic lives.

Governor Jerry Brown just signed AB 1121, written by Assemblymember Toni Atkins, which streamlines the process for documentation changes, specifically name and gender changes on ID like driver’s licenses and vital documents like birth certificates. The law was cosponsored by Equality California and the Transgender Law Center.

Up until now, changes to birth certificates required a court hearing, and now California is in line with many other states that only require an administrative action, in this case from the Office of Vital Records. Since the court filing fee is $435, and the courts are already overburdened with actual cases, this is a win-win for transgender Californians and good governance.

The law also changes the requirement of public notice, which for many transgender people requires outing themselves to their entire community, which may not be safe and at the least is an unnecessary hassle.

“One step in enabling transgender people to live authentic lives consistent with their gender identity is to ensure that their names and their official documents are consistent with who they are,” said Atkins. “I am very pleased that the Governor signed my bill to move us forward toward equality and dignity for transgender Californians.”

“Today California made it easier for people who are transgender to live authentic lives by removing unnecessary barriers to name changes and identity documents,” said John O’Connor, EQCA executive director. “This is a common sense solution to ensure that transgender Californians are treated fairly and with respect. We thank Gov. Brown and Assemblymember Atkins for their leadership.”

Enrollment opens in one week

September 24, 2013 By Shaun Osburn

hhweOn October 1, California’s online health insurance marketplace, known as Covered California, will open enrollment and begin connecting residents with new, affordable health insurance options. This marketplace was created as a result of the Affordable Care Act, also known as Obamacare, and has the potential to drastically improve health disparities among the lesbian, gay, bisexual and transgender community.

Equality California Institute educates LGBT people and the public at large about issues impacting our community, and barriers to health care has been one of the Institute’s central focuses this year. That’s why we launched our “Health Happens with Equality”/”La Salud Ocurre Con La Igualdad” campaign to connect thousands of LGBT Californians with the resources needed to make informed health insurance decisions.

Click here to sign-up to receive reminders about enrollment or to get enrollment assistance. Read the rest of this entry »

Bayard Rustin and “From Protest to Politics”

August 28, 2013 By Josh Steichmann

Bayard Rustin From Protest to PoliticsIn February 1965, Bayard Rustin wrote an essay for the magazine Commentary, titled “From Protest to Politics: The Future of the Civil Rights Movement“.

In it, he argues that the work of desegregating lunch counters, hotels, swimming pools and libraries was peripheral to the broader Civil Rights Movement. “Without making light of the human sacrifices involved in the direct-action tactics … that were so instrumental to this achievement,” the protests, hit “Jim Crow precisely where it was most anachronistic, dispensable, and vulnerable.” The real challenge would be to shift the institutional and structural impediments to full equality. “What is the value of winning access to public accommodations for those who lack money to use them?” Rustin asked.

Rustin was not an outside critic of the Civil Rights movement; rather, Rustin was part of the core whose protests had been so instrumental to dismantling Jim Crow. He was the main organizer of the March on Washington for Jobs and Freedom, whose 50th anniversary we celebrate today. He convinced Dr. Martin Luther King jr. to speak last, knowing his, “I Have a Dream” speech would be an indelible vision of equality. Rustin was the person who introduced King to Gandhi’s non-violent tactics, and was an organizer of the Montgomery Bus Boycotts. His pamphlet on the march remains a classic of organizing literature. Read the rest of this entry »

God Save the Nelly Queen

August 19, 2013 By Josh Steichmann
Empress Jose Sarria, the Widow Norton

Empress Jose Sarria, the Widow Norton

José Julio Sarria (1922-2013)

Before Tammy Baldwin, before Barney Frank, even before Harvey Milk, there was Empress José Julio Sarria, the Widow Norton, the first proudly gay person to run for elected office in North America.

A World War II veteran who fell into a job as a cocktail waiter at San Francisco’s Black Cat Tavern, at 710 Montgomery St. (now a tapas bar), Sarria became a celebrated drag performer after a vice bust scuttled his hopes of being a teacher. It was out of the Black Cat that Sarria launched his activist career, founding the League of Civic Education, the first of his homophile organizations.

The Black Cat was also where Sarria started his political career, running for a seat on the San Francisco Board of Supervisors 12 years before Harvey Milk made his first run. Sarria was the first proudly gay man to run for elected office, and despite meddling from both Republican and Democratic opposition, came in ninth out of 33 candidates, with almost 6,000 votes. Sarria had lost the seat but the lesbian, gay, bisexual and transgender community had won recognition as a political power. Read the rest of this entry »

DHS to Review Applications Denied to Same-Sex Couples Due to DOMA

July 26, 2013 By Jesse Melgar
Section 3 of DOMA was ruled unconstitutional in June

Section 3 of DOMA was found unconstitutional in June.

The Department of Homeland Security (DHS) released new guidelines today announcing that it will reopen past petitions or applications that were denied because of the Defense of Marriage Act (DOMA) and were submitted after Feb. 23, 2011 – the date President Obama decided his administration would not defend the act in court.

The new guidelines will allow gay and lesbian couples to request a review of their denied case, however, regardless of whether the decision on their case was made before or after that date.

Additionally, U.S. citizens can bring their same-sex fiancés into the country ahead of scheduled marriages.

Last month, the DHS moved quickly in response to the Supreme Court ruling on DOMA and issued new policies regarding immigration petitions for couples in same-sex marriages. The post-DOMA policies guarantee that Visa applications of foreign nationals in same-sex marriages must be treated equally as applicants in heterosexual unions under the law.

Some of the highlights in the recently updated “Same-Sex Marriages FAQ” include:  

“Q1: I am a U.S. citizen or lawful permanent resident in a same-sex marriage to a foreign national. Can I now sponsor my spouse for a family-based immigrant visa?
A1: Yes, you can file the petition. You may file a Form I-130 (and any applicable accompanying application). Your eligibility to petition for your spouse, and your spouse’s admissibility as an immigrant at the immigration visa application or adjustment of status stage, will be determined according to applicable immigration law and will not be automatically denied as a result of the same-sex nature of your marriage.”

“Q2. I am a U.S. citizen who is engaged to be married to a foreign national of the same sex.  Can I file a fiancé or fiancée petition for him or her?
A2. Yes.  You may file a Form I-129F.  As long as all other immigration requirements are met, a same-sex engagement may allow your fiancé to enter the United States for marriage.”

“Q3: My spouse and I were married in a U.S. state that recognizes same-sex marriage, but we live in a state that does not. Can I file an immigrant visa petition for my spouse?
A3: Yes, you can file the petition. In evaluating the petition, as a general matter, USCIS looks to the law of the place where the marriage took place when determining whether it is valid for immigration law purposes. That general rule is subject to some limited exceptions under which federal immigration agencies historically have considered the law of the state of residence in addition to the law of the state of celebration of the marriage. Whether those exceptions apply may depend on individual, fact-specific circumstances. If necessary, we may provide further guidance on this question going forward.”

“Q5. My Form I-130, or other petition or application, was previously denied solely because of DOMA.  What should I do?
A5.  USCIS will reopen those petitions or applications that were denied solely because of DOMA section 3.  If such a case is known to us or brought to our attention, USCIS will reconsider its prior decision, as well as reopen associated applications to the extent they were also denied as a result of the denial of the Form I-130 (such as concurrently filed Forms I-485).”  

If you or someone you know has questions about how the DOMA ruling might impact their binational same-sex relationship or marriage, we urge you to visit this page to find out more information.

Victory for Arcadia Trans Student!

July 24, 2013 By Josh Steichmann
Photo by Daniel Lin

Photo by Daniel Lin

Arcadia Settles With Transgender Student; To Apply District-Wide Protections For Transgender Students

The Arcadia Unified School District has settled with a transgender boy over the discriminatory treatment he received on a school camping trip (PDF of the settlement here.)

The boy, represented by our friends at the NCLR, won districtwide accommodations for not just himself, but every transgender student in the district. Arcadia USD will now join districts like LAUSD and San Francisco USD in making sure that transgender students aren’t excluded from activities, sports and facilities just because of who they are.

Congressmember Judy Chu, whose district includes Arcadia, said: “Teenage years are hard enough to navigate when the only concerns are making friends and learning the lessons of the day. But those challenges are compounded when a teenager happens to be LGBT, and basic notions of equal treatment are brought into question. The fact that this young man was excluded from using school facilities is regrettable to say the least, but thanks to his decision to act and not accept the circumstances he faced, others will not face the same discrimination.”

The United States investigated this complaint under Title IX of the Education Amendments of 1972 and Title IV of the Civil Rights Act of 1964.  Both Title IX and Title IV prohibit discrimination against students based on sex.
Under the settlement agreement, the district will:
•         work with a consultant to support and assist the district in creating a safe, nondiscriminatory learning environment for students who are transgender or do not conform to gender stereotypes;
•         amend its policies and procedures to reflect that gender-based discrimination, including discrimination based on a student’s gender identity, transgender status, and nonconformity with gender stereotypes, is a form of discrimination based on sex; and
•         train administrators and faculty on preventing gender-based discrimination and creating a nondiscriminatory school environment for transgender students.

More from LGBT Weekly.

The School Success and Opportunity Act (AB 1266), authored by Tom Ammianno and sponsored by EQCA, NCLR, ACLU of California, the GSA Network and Transgender Law Center, would mean that instead of having to fight each school district in court, all California school districts would have sane, safe policies for ending the exclusion of transgender students. Urge Gov. Brown to sign the School Success and Opportunity Act by filling out our action alert.

Photograph by Daniel Lim

Guest post: The Problem in Porterville

July 17, 2013 By Josh Steichmann

Band Together for Band Town

Band Together for Band Town

This is a guest post by Barry Caplan, of Porterville Equality and Fairness for All

Porterville, CA is a small city of 55,000 in the Central Valley midway between Fresno and Bakersfield, nestled at the eastern edge of the Central Valley and the foothills of the Sierra Nevada.

Last night, our City Council continued its 5-year escalation of anti-LGBT measures with a triple-header. These may have been the first anti-LGBT measures passed in California, or even in the entire U.S., since the twin Prop. 8 and DOMA rulings from the US Supreme Court last month.

How did this come to be?

In late summer 2008 Council unanimously passed a Resolution in favor of Prop 8, and a nascent LGBT community was born. We addressed Council at every opportunity, and when another anti-LGBT Resolution was proffered, it was defeated 3-2 after a 90 minute public hearing primarily featuring fire-and-brimstone preaching, praying and other church activities. Council and the city were shocked at the outcome of the vote.

After that, there was an effective political truce. We monitored Council so the wouldn’t do anything inappropriate, and they mostly behaved. With the additional energies not needed to spend on Council, the growing community turned towards do-gooding in town. Much of the work has been devoted to mental health issues, such as suicide prevention and anti-bullying efforts, in Porterville and the surrounding Tulare County.

That continued for 4 years, when, at the beginning of June, Brock Neeley approached recently elected Mayor Virginia Gurrola to issue a LGBT Pride Month Proclamation using the City’s standard procedure. She readily agreed and it was scheduled to be presented at June 4th’s Council meeting.

At that point, all hell broke loose. All four Councilmen objected at the reading of the Proclamation, breaking protocol that they all sign it and shake the hands of the recipients. Only Mayor Gurrola signed it and only she came off the dais to shale the hands of the volunteers.

An overflow crowd was present, just like in 2009, and the ensuing public comments were so mean-spirited it left the Mayor in tears. It would not be the last time she cried by a long shot.

For a total of four meetings in seven weeks until last night, the Councilmen fomented anti-LGBT crowds, who have included Westboro Baptist associates and worse. Still, three of them, with one on the fence, raced to find a way to rescind a Proclamation, which we think is unprecedented in California, and to replace it with a thinly disguised religions Resolution (not Proclamation) designed to show tolerance for all. In addition, changing the process of how Proclamations are issued so that LGBT-related proclamations will likely never happen again was on the agenda.

In the end last night, on a series of 3-2 votes, the process was changed, the Proclamation was rescinded, and the bogus Resolution installed. As the final action was take, GetEqual activists from the area, including Robin McGehee (who is from our area), staged a civil disobedience action. Three were arrested, and the Council dais broke out in chaos as well. There was enough yelling at each other on the dais to draw watchful police eyes focused there.

Again, the Mayor was left in tears. So was the LGBT community of Porterville, but not for the same reason.

What is next?

In the short term we ask for the response of the public to send their thoughts to each of the Councilmembers and to cc: us so that we know what has been said. Mayor Gurrola spoke that in the last six weeks, she has received support messages from across California and the US and even the world. We don’t know what the others got besides a copy of a petition with over 1000 names on it. We encourage you to contact them and let us know what you said so we can leverage that in coming campaigns.

Voted with us: Mayor Virginia Gurrola, Vice Mayor Pete McCracken

Voted against us: Brian Ward:, Grag Shelton, Cameron Hamilton

Our email:

Our community has grown from about 5-8 people in 2008 to well over 100 people willing to speak at Council. Many individuals — lesbian, gay, bisexual and transgender — came out to speak, several to say they were coming out for the first time. Very powerful under such circumstances. And many more have approached us but not been willing to speak.

One of the last public speakers last night before the votes was a local young man who said he was coming out at that time. None of us knew him. He spoke of how he hated his life, living in Porterville, growing up here, the people here, everything. He slipped away in the crowd. Our trained mental health and suicide prevention volunteers are worried and trying to identify and find him. At the same time, at the instigation of Councilman Brian Ward, a school psychologist by trade who moonlights on Council demeaning and diminishing public mental health work, managed to ram through all that he wanted.

As a community, we will regroup and make a better Porterville. We are aiming first and foremost to reach out to the outside world, to have connections with people and groups with whom we can partner and who will look in on us. We have begun that effort, but it is just a start. There will be much more to come with your help.

If I woke up one day soon and a lot of skilled graphic artists who could help us had introduced themselves, that would not be a bad day. We have plans, but we have limited skillsets. That is an area where I can anticipate any help would be very high value to us.

We will take this hit, and set about the work with you to making sure Porterville becomes part of California again. The best way right now to join us is to like our Facebook page. Be sure that you are set to receive all of our notifications. We will be in touch there!

Barry Caplan is coordinator of Porterville Equality and Fairness for All (PEFA), a coalition of local LGBT supportive groups, and local chapters of national organizations. Please like PEFA on facebook at You can find all the latest coverage, including videos, on this facebook page. You can email PEFA at

APU Visits Equality California’s Office In West Hollywood

April 19, 2013 By Guest Contributor

By Arturo, Toni, and P


On Thursday, April 11, Equality California opened the doors of our West Hollywood office to the students of Azusa Pacific University (APU). Field Manager, Bella Week, and Phone Team Supervisors, Aimee Mendez and Justin Florez talked to the group of 20 students about EQCA’s work, and answered questions they had about our past and present legislation.

APU is the largest Christian university in California. The school’s policy clearly states that same-sex relationships or acts are strictly prohibited and subject to disciplinary action. On the application, the student must agree that “homosexual activities are unacceptable behaviors for students enrolled at APU”. Because of this, some of us were a little unsure of how all of the students would react to the stories of LGBT people. As we began to share our stories, the group of students became very open and interested in our personal experiences and our fight for LGBT equality.

The discussion then turned into an open forum between the APU students and EQCA staff. At this time, the group was joined by three of our phones team staff – Arturo, Toni and P. What happened was a truly amazing discussion about EQCA, sexuality and gender.

During the open discussion, one student asked each of the staff members to talk about their personal journey and how they joined EQCA.  Read the rest of this entry »

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Complex Tax Rules For Same-Sex Couples

April 8, 2013 By Guest Contributor

same sex taxesUnless you are a CPA, the very thought of filing federal and California tax returns can cause an anxiety spike. The stress is compounded for those who face complex tax scenarios, such as same-sex couples for whom federal and California laws are in conflict regarding the definitions of marriage, civil unions, and domestic partnerships. The resulting tax implications are not only unequal to what heterosexual married couples pay, but they are also confusing to apply. As we wait for the United States Supreme Court to hear arguments challenging the constitutionality of the 1996 Defense of Marriage Act (DOMA), same-sex couples should be careful in preparing their tax returns in order to avoid audits, potential penalties, and overpaying their taxes.

The good news for Californians is that for couples who were legally married in 2008, prior to Proposition 8, or who have become registered domestic partners, the state tax treatment is the same as for heterosexual married couples. Taxpayers simply combine all income, deductions, and credits on the same California Form 540 tax return. This year’s anticipated Supreme Court decision on Proposition 8 will not affect California tax treatment one way or the other because couples already are permitted to file jointly if they are either married or registered domestic partners.

By contrast, the Internal Revenue Service (IRS) currently requires same-sex couples to file separate federal returns as single taxpayers. This becomes a complex process because the federal government recognizes California community property laws, but not California’s recognition of same-sex unions. IRS Publication 555 (Dec. 2010) provides information on the application of community property for registered domestic partners, an arrangement which can include same or oppositesex couples who are not married according to the federal definition. For federal tax purposes, “community property” is defined as assets acquired or income earned after the inception of the domestic partnership. If the couple has a joint account and they pay all their expenses from this account, all expenses/deductions will be considered community. “Separate property” is defined as assets acquired prior to the inception of the partnership and any income/activity generated from said assets.

All of the couple’s community property—their combined income and any related tax February 2013 33 Creating these schedules requires significant additional preparation time and expense that most other married taxpayers do not incur. withholding, deductions, and credits, including child and dependent care credits—must be split between the two federal Form 1040 returns. The returns must be filed with supporting spreadsheets that show the details of how the various elements are divided. Creating these schedules requires significant additional preparation time and expense that most other married taxpayers do not incur. Due to these additional schedules, the separate federal tax returns cannot be filed electronically, but must be prepared in paper form and mailed, requiring IRS employees to manually process the returns, which increases the chances of processing mistakes and IRS inquiry. If a same-sex couple does not precisely prepare the detailed schedules, the likelihood of receiving correspondence from the IRS is high.  Read the rest of this entry »