Tax Planning News for Modern Families and LGBTQIA+ Individuals

Modern families have had to contend with plenty of changes to the tax landscape in recent years, and that will likely continue well into the future. When members of the LGBTQIA+ community are granted new avenues for economic advancement and empowerment from the highest levels of government, new tax outcomes are often created. With things in a constant state of flux, it is important to stay updated on the latest proposals, where they stand in terms of approval, and how they affect year-end tax planning for modern families.

RESPECT FOR MARRIAGE ACT

In November 2022 the Senate advanced the Respect for Marriage Act to secure federal protection for same-sex marriages in a bi-partisan vote. The bill was backed by 12 Republican members and moved back to the House to review an amendment made by the Senate. As of this Guide’s publication, it is expected to pass the House as it did earlier this year, pre-amendment, and will head to President Biden’s desk for his signature. This legislation safeguards marriage equality by recognizing marriages regardless of sex, race, ethnicity, or national origin and paves a path forward of peace and understanding in the United States for all modern families. It will provide much-needed certainty for same-sex couples as they navigate their future, personally and financially. The bill also will remove many of the question marks faced each year as couples and their advisors analyze their tax planning.

Pride Acts

There are two proposed PRIDE (Promoting Respect for Individuals’ Dignity and Equality) Acts in the House:

The PRIDE Act of 2021, if approved, will allow legally married same-sex couples to amend returns for all previous years in which they were married. It also proposes corrections for gender-neutral language within the tax code. It was referred to the House Committee on Ways and Means in June 2021. This Act could result in over $60 million in tax refunds for married same-sex couples. It will also promote gender equality in the tax code going forward, eliminating systemic hurdles for same-sex couples.

The PRIDE Act of 2022, introduced in February 2022, proposes expanding the Office of Minority and Women Inclusion to encompass LGBTQIA+ identities. It also proposes an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act to include an LGBTQIA+ reference. It currently resides with the House Committee on Financial Services.

Executive Order Advancing Equality for LGBTQIA+ Individuals

In June 2022, President Biden signed the Executive Order Advancing Equality for LGBTQIA+ Individuals (the Order). It includes some key actions to promote inclusion and advancement for the community:

• Review families’ access and barriers to federal programs and benefits.
• Promote expanded federal data collection on sexual orientation and gender identity.
• Appoint LGBTQIA+ leaders to the highest levels of the U.S. government.

The Order will have a lasting impact on modern families. By increasing access to benefits and jobs that were once beyond reach, the Order grants economic empowerment to modern families. The Order is also designed to help marginalized individuals find housing and escape poverty. Because economic advancement shifts tax outcomes, it is imperative to stay updated on tax implications.

Planning Considerations

In addition to the current legislative advancements, there are milestones modern families reach that affect tax outcomes.

Marriage

Each couple should analyze their tax outcome and compare the effects of filing married filing jointly (MFJ) or married filing separately (MFS). Many people assume filing MFJ improves the tax outcome, but it depends on circumstances such as dependents, location, each person’s income, and other factors. It is important to analyze the scenario in advance to understand how marriage affects your tax bottom line.

Estate planning

As systemic barriers fade away and modern families advance economically, additional estate planning opportunities arise. Careful planning can ensure accumulated wealth is passed on to the next generation. It is also important to consider the legal and tax implications so each family can maximize their outcome.

Tax planning is more essential than ever for LGBTQIA+ families. It is important to keep this in mind during year-end planning, especially when there are opportunities to amend multiple prior year returns or take on new types of estate planning.