The Supreme Court recently struck down Section 3 of the Defense of Marriage Act, which defined a spouse as a person of the opposite sex and marriage as a union between one woman and one man. Those who were against DOMA are celebrating this victory, but many people do not realize the level of impact the ruling will have on the accounting industry. Because the law will change the way some people file their taxes and handle other financial affairs, accountants must be prepared for the changes brought about by the DOMA ruling.
One of the most obvious effects of the DOMA ruling is that married same-sex couples will now be able to file their income taxes jointly. When they begin filing taxes jointly, these couples' tax rates and eligibility for tax credits may change. The DOMA ruling will also affect estate tax and gift tax issues among married same-sex couples. The Supreme Court case was actually brought by Edith Windsor, who had to pay more than $300,000 in estate taxes when her wife passed away. Had same-sex spouses qualified for the spousal deduction at the time of her wife's death, Windsor would have paid no estate tax. The ruling also makes married same-sex couples eligible for the spousal gift deduction that allows them to transfer large sums of property from one spouse to another.
Accountants will also have to help their clients decide if it would be beneficial to file amended tax returns for prior tax years. For some married same-sex couples, filing taxes jointly will reduce their tax obligations or help them qualify for refundable credits that they did not qualify for as individual filers. Other couples will not benefit from filing joint amended returns, so you will have to review each client's personal circumstances to determine if filing an amended return would be worth it. Filing an amended return would be most beneficial for married same-sex couples with one partner who does not earn a significant amount of income.
If you work with same-sex couples who are approaching retirement, you will also have to review their planning documents and recommend any needed changes. Some of your clients may need to change the beneficiaries on their individual retirement accounts. The DOMA ruling could also change the amount a same-sex spouse is allowed to contribute to an IRA, so this is something you must review with each client. If a same-sex couple should divorce, it will also be easier to separate their retirement assets, which will have a positive impact on the accounting and legal professions.
It does not matter how accounting professionals feel about the DOMA ruling and the changes it will create; what matters is that they follow the tax code and relevant financial laws. If you regularly work with married same-sex couples, you should be prepared to discuss the implications of the DOMA ruling on their taxes and retirement accounts.
(Photo courtesy of nongpimmy / freedigitalphotos.net)
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