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Hey Domestic Partners in CA, Listen Up!

January 21, 2011

There’s a change in the federal income tax rules for domestic partners in California. The I.R.S. has stated that each must report half of his or her community income on separate returns. Previously, the I.R.S. had required each partner  to report his or her actual share of earnings, regardless of community property laws. The agency changed its position after California amended its law to treat earned income as community property for state income tax purposes unless the couple opted out.

The new rule takes effect for 2010. But filers can apply it retroactively to 2007 and file amended returns if doing so will save them tax. The partners still file as singles. They cannot file jointly or use married filing separately status because that is available under federal tax law only for traditional married couples. The I.R.S.‘ new position means that, in some case, high income domestic partners filing as singles will pay less total tax than a married couple with the same income.

It is unclear whether domestic partner in Nevada and Washington are affected. Both states have community property laws, but neither one levies an income tax on individuals. So until the I.R.S. says otherwise, the ruling applies to California only.

At Gunwel Tax & Bookkeeping we can help you navigate these ongoing tax law changes. Give us a call at 212-979-6830 or stop by for a visit. GAI (gunwel.com) we know how difficult it has been as we have been there and want to help. See you soon!

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