Same-sex Marriage and State Taxes: 2014

flag-36423_1280This year has seen the repeal of more state bans against same-sex marriage. Thirty-two states and the District of Columbia now recognize same-sex marriages. Additionally, Missouri recognizes same-sex marriages conducted outside the state, even though such marriages cannot be performed in Missouri.

How does all of this affect taxes?


The federal government recognizes all same-sex marriages. If a couple has a valid marriage license from a state that recognizes the marriage, then the couple is considered married for federal taxes, even if they are currently living in one of the remaining states that doesn’t recognize same-sex marriage.

Bottom line for taxes: same-sex couples file their federal taxes as married.


Things are still tricky at the state level. If a same-sex couple is filing a state tax return for one of the 30 states that now recognize same-sex marriage, they’ll file that return as married.

It’s trickier if the couple has a filing obligation in a state that doesn’t recognize their marriage.

Non-Recognition States

For example, Nebraska still doesn’t recognize same-sex marriage. A couple from Omaha could cross the Missouri River into Iowa, get a marriage license from Iowa, and go back to Nebraska, where Nebraska would not recognize their marriage.

But because the marriage license is from Iowa, the federal government recognizes the marriage. That couple would file as married on their federal taxes, but as two single people on their Nebraska tax return.

Multiple States

It gets even trickier if we’re talking about filings in multiple states. If the couple in the example in the last paragraph has filing obligations in Iowa and Nebraska (extremely common for people living in western Iowa and eastern Nebraska), they would file their federal taxes and Iowa taxes as married, but their Nebraska taxes as two single people. They would likely need to perform recalculations of their tax situation to fill out their Nebraska taxes.

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IRS Oops on E-Services E-mail

error-63628_1280Earlier this month, the following e-mail arrived in my inbox (and in many other tax preparers’ inboxes):

Congratulations!  Your e-filing firm is eligible to use the e-Services incentive products.  The following incentive products are now available:

Disclosure Authorization allows you to submit Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization electronically.

Electronic Account Resolution enables you to expedite closure on clients’ account problems by electronically sending/receiving account related inquiries. You may inquire about individual or business account problems, refunds, installment agreements, payments or notices.

Transcript Delivery System provides online tax return transcripts, account transcripts and a record of account for both individual and business taxpayers.

Remember that you must have a power of attorney on file before accessing client’s records using Electronic Account Resolution or Transcript Delivery System.

Principals or Responsible Officials can grant their employees access to these e-services through the on-line e-file application.  First, add individual employees to the e-file application using the Delegate User function.  Next, activate the individual e-services for an employee using the Delegate Authorities link.

I was excited to receive this because it seemed to indicate that the IRS was bringing back the ability to elecronically file power of attorney forms.

I wanted to jump on this right away, but caution told me to sit on it for awhile so I flagged the e-mail for follow-up later this week.

My caution proved to be justified when I received the weekly “E@lert” published by the National Association of Enrolled Agents. Other EAs had received the same e-mail and asked NAEA about it. NAEA asked the IRS for more information and here’s what happened:

The response (to us as well as to the members who received the initial message — some as many as nine times): a follow-up “oopsie” e-mail. Subject line: Disregard email about e-services products. The full text follows:

“If you received an Oct. 23 email notifying you that you are eligible for e-services Incentive Products (TDS, DA, EAR), please disregard as this email was inadvertently sent. We apologize for any inconvenience this may have caused.”

That’s quite a mistake to “inadvertently” send an e-mail to practitioners, implying that online services were available again when they really aren’t. Especially since the IRS doesn’t intend to send a follow-up retraction to all of us who got the original e-mail.

Thank goodness NAEA published the IRS retraction, because otherwise I would have tried using the system again to submit power of attorney forms and I would have been confused as to why it wasn’t working.

Of course, I have long been confused as to why the IRS did away with the ability to submit power of attorney forms online, as I blogged about in the past.

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How Non-Residents or Part-Year Residents Report Federal Refunds on Iowa Tax Returns

Iowa requires people to claim federal tax refunds as taxable income on Iowa tax returns. Calculator, Numbers, Glasses

If you’re an Iowa resident all year, it’s simple: your federal tax refund is likely taxable in Iowa. (Though not always the whole thing.)

The reporting is a little more complicated if you moved to or from Iowa during the year, or if you’re a non-resident required to file an Iowa tax return.

Moved To Iowa

In the first year you move to Iowa, you DO NOT report your federal tax refund on your first Iowa tax return.

Example: You move to Iowa in 2014. On your first Iowa tax return for 2014, you will not report any refunds on the return.

Move Out Of Iowa

In the year you move out of Iowa, you WILL report your federal tax refund on your final Iowa tax return.


If you’re a non-resident, the reporting depends on if you filed an Iowa tax return in the prior year.

If you didn’t file an Iowa tax return in the prior year, you don’t report any refunds on your current Iowa return. If you did file an Iowa tax return in the prior year, then you’d need to report your refund on your current Iowa return.

What If You Didn’t Get a Federal Refund?

If you owed the IRS instead of getting a refund, Iowa allows you to take a deduction for the additional tax paid.

The rules for taking the deduction for additional taxes paid are the same as outlined above for reporting refunds.

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Meet Joe the Window Washer

window-washer-30554Meet Joe.

He’s a window washer, one of the best in the country. He’s developed his own window-washing systems and cleaning solutions.

Joe’s business is the envy of other window washers. They call him, wanting to know his secrets.

Joe’s customers love him.

Joe started his business because he had a knack for washing windows, and he wanted freedom from “workin’ for the man.”

Joe just wants to wash windows and be left alone by the world.

He hates the government. He hates regulations. He hates paperwork, whether it’s government-related, or insurance-related or bank-related. Paperwork really bothers him.

He’ll grudgingly file a tax return at tax time, but that’s the extent of what he’s willing to do when it comes to dealing with bureaucracy.

Joe has thought about expanding his business. His customers and friends tell him he could have a window-washing empire. Some even suggest franchising.

But Joe doesn’t want the hassle and headaches associated with growth and expansion.

He knows he’ll probably never get fabulously wealthy. He knows his business will die when he dies or retires. And he’s okay with that, because he would probably have to hire an attorney to help with planning, and he thinks attorneys are money-sucking leeches.

If Joe works with an accountant, the relationship consists solely of Joe handing the accountant a sheet of paper with Joe’s back-of-the-napkin tally of income and expenses for the year so the accountant can plug the numbers into a tax return and get it filed for another year to keep the government off his case for another year.

Joe has no interest in having an accountant keep his books, or give him business advice. What a waste of money!

Joe just wants to wash windows and be left alone.

Joe is fictional. But he describes more than a few of the small business owners I work with.

And here’s something important that needs said: It’s okay to be Joe the Window Washer.

So much of what we read about entrepreneurship focuses on growth and expansion. If you’re not growing and expanding, you’re a failure.

With Joe the Window Washer, I’m saying it’s okay to keep your business small and manageable. It’s not a matter of “don’t grow your business.” It’s more a matter of “don’t grow beyond your means to successfully manage it.”

That means you have to know yourself and what you can handle. It might mean deciding to keep your product or service offerings and territories small and manageable. It might mean not hiring employees.

It’s okay to be Joe the Window Washer, but it’s important to know that about yourself before you get too far along in growing your business.

And it’s okay to change your mind as the years progress. You might start as Joe the Window Washer and then change in a few years and decide to hire employees or go for big growth.

Or maybe you go for big-time growth at first, and then realize you made the wrong choice and you decide to downsize. That’s okay too.

Joe will be making more appearances on this blog in future posts so look for him to appear again.

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Iowa Tax Filing Deadline is October 31: Claim Your $54 Credit Before Then

iowa-43743_1280The extended deadline for filing Iowa income tax returns is October 31. This year’s deadline has some added meaning, because it’s also the deadline for claiming the $54 Iowa Taxpayers Trust Fund Credit.

The credit is $54 per primary taxpayer. So a single person gets $54, and a married couple is allocated $108 total. I outlined details of the credit in a blog post in February, which you can find here.

Unlike most tax credits, which can typically be claimed whenever you file your tax return (even if it’s filed late), the Iowa Taxpayers Trust Fund Credit for 2013 tax returns can only be claimed on a 2013 tax return filed by the extended due date.

So if you haven’t filed your Iowa tax return yet, make sure to do so before October 31, or you’ll miss out on your $54 credit.

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