The following presents some of the tax planning opportunities that are unique to the LGBT community.

It is important to emphasize that the application of these opportunities will vary according to the particular needs and circumstances in each situation. It is important to select a CPA firm that has experience in the Gay and Lesbian tax community.

Gay and Lesbian tax planning for overall reduction of the total tax burden is facilitated by shifting income to the partner with the lowest marginal tax rate. In other words if one of the couple is earning less than his or her partner it makes sense to divert income from the higher earner of the same sex couple so that the overall tax for both partners will be less. Similarly deductions can be channeled to the spouse with the higher marginal tax rate. So if for example the extra $20,000 of income could be taxed at a 25% marginal rate instead of a 35% marginal rate, overall the couple will save $2,000.

This is the general overall concept, but what are the strategies for achieving this?

For Married or Registered Domestic Partners in California or other Community Property States, the IRS now looks at the income from both spouses together. In some ways this makes planning more essential. Specific agreements are often necessary to document that assets should be attributed to only one spouse.

For couples outside California or other Community Property States, or for couples that are not formally married or registered, planning can be more fluid. In these situations most assets can be legally owned jointly by the same sex couple. Therefore the income that these assets are generating, dividend or interest income may be diverted from one partner to the other. Similarly, deductions with the proper planning can be diverted to the partner who will benefit the most from these deductions. It is important therefore to plan ownership of real estate, the mortgage obligations and their payments in the context of the couples overall tax planning strategy. But beware, the federal government does not recognize this union. It is therefore very easy to get entangled in the limitations imposed by the Estate and Gift tax laws. The couple is limited to gifts of up to $12,000 per year. Any transfers between the couple in excess of this limit may subject to the federal gift tax.

Estate tax planning is very important in particular to same sex couples. It is vital to ensure the financial security of the gay and lesbian couple to create a will and to avoid probate by creating a living trust. If this is not taken care of the domestic partner may have all of his or her assets diverted by family members. Proper title to assets must be preplanned and the use of insurance policies often may be employed as a technique in these cases to avoid estate tax consequences. Planning becomes particularly vital because of the non recognition by the federal government of same couple unions. Each case will be unique and warrants a different approach to maximize the financial safety of each partner. An additional level of sophisticated estate tax planning is required as there is no transfer between spouses qualifying for the unlimited estate tax deduction.