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By Jason Stipp | 02-21-2014 03:00 PM

A Tax Checklist for Same-Sex Couples

After the Supreme Court struck down part of the Defense of Marriage Act, same-sex couples will want to consider new opportunities for amending income tax returns, streamlining estate plans, maximizing Social Security, and more, says financial planner Michael Kitces.

Michael Kitces is a Partner and the Director of Research for Pinnacle Advisory Group, and publisher of the financial planning industry blog Nerd's Eye View. You can follow him on Twitter at @MichaelKitces or connect with him on Google+.

Jason Stipp: I'm Jason Stipp for Morningstar. The Supreme Court's 2013 decision striking down part of the Defense of Marriage Act, known as DOMA, has created some planning opportunities and a few questions for same-sex couples.

Here to walk us through some of the important highlights is financial planning expert Michael Kitces.

Michael, thanks for calling in today.

Michael Kitces: Great to be here. Glad to join you.

Stipp: When DOMA was originally struck down, the basic notion was that if a same-sex couple had gotten married in a state that recognized that marriage, their marriage would also be recognized by the federal government. What wasn't addressed was whether a state that does not recognize a same-sex marriage would be required to recognize a marriage that happened in another state. Right now, they don't have to recognize that.

So, there were some questions about, if a same-sex couple got married in Massachusetts and moved to Indiana, what would happen to their federal benefits in that case? Have any of those issues been clarified since the decision?

Kitces: Great question, Jason. We've seen some clarification. Here's basically what it comes down to: When we look at all the different provisions that apply to married couples in the law--and by some estimates, there are literally more than a thousand different rules and laws out there that in some way, shape or form mention the word marriage. This question has lingered, what exactly does marriage mean? And if you get these conflict of law situations, like, I got married in a state that recognizes the marriage and I live in a state that doesn't, whose laws are we supposed to use?

Historically that didn't matter, because with heterosexual couples, we had some pretty clear uniformity across states as to what constituted marriage. With same-sex couples, this has become more complicated. All the federal decision did, all the Supreme Court decision really did, was state that the federal government must acknowledge whatever the state acknowledges. The federal government is not allowed to override the state. That was the actual portion of DOMA that got struck down.

What we got left with is this continuing rule-by-rule or state-by-state patchwork that says, some states will acknowledge the marriage only if it's legal in their states. We call that the state of residence rule. Other states will simply say, as long as the place that you got married, it was a legal marriage there, we will recognize your marriage here as well. That's often called the place of celebration rule.

What we've seen going through the federal laws now is different parts of the federal government are actually coming to different conclusions. So, the IRS came forth with one decision; they said, we'll follow place of celebration, which means as long as it was legal where you got married, we'll recognize it as legal. Other parts, like Social Security, have gone a different direction.

So, it really does remain a little bit of a patchwork, because truly, it's just hard-wired into the law, some rules used one definition, some rules used the other. Some rules were flexible enough that the government can just shift its direction and say we're going to follow this one now. And other rules, we can't technically change without an act of Congress, so it may be much slower to get them all aligned.

Stipp: Setting aside the issues of couples needing to figure out some of these state-by-state issues that will affect their planning Let's assume that a same-sex couple does live in a state that recognizes. Now, the federal government will also recognize.

Let's talk about some of the planning issues that should be on their radar that they may want to be taking advantage of. You're talking about income taxes there. So, the option to file a joint income tax or married filing separately. What are some reasons why couples will want to make sure that they're filing in the right way, now that they can file as a couple.

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