Sure, it’s easier post-marriage equality to file taxes if you’re LGBTQ, but it’s a lot of work. Many LGBTQ folks have questions about taxes, tax credits, tax deductions… and finding a trustworthy, queer-friendly tax expert you can be honest with is not easy.
Our “What’s the T with Taxes?” educational video, benefiting the HRT Access Fund, touched on some of the top issues impacting LGBTQ taxpayers. This post will help you understand and plan for your tax season.
Filing taxes: Where? When? And How?
Know your tax deadlines and file on time. The deadline is April 15, but sometimes — like in 2020, for obvious reasons — it gets extended, or a weekend or holiday pushes it back a few days.
If you don’t think you’ll file by April 15, you can request an extension. However, if you think you’ll owe money, it’s definitely worth it to file on time if you can. Here’s why: The longer you wait to file, the more you’ll owe.
The IRS charges interest on unpaid taxes from the April 15 tax deadline, whether you filed on time or asked for the extension. You’re not just deferring judgment day by getting an extension. You’re actually giving the government more money in interest.
As for how to file taxes, you do you.
Some folks like to work with a tax preparer who’ll dot every I, cross every T, and check for every possible credit. Others can’t afford the upfront costs of that service, which averages $273 for the federal 1040, a schedule A, and a state return, according to the National Society of Accountants. Budget-friendly tax software like TurboTax is fine for most people.
Dallas Estes, a tax preparer who helps artists understand tax write-offs, says it’s worth seeking out a tax preparer in years when your tax situation has changed due to life circumstances: an inheritance, marriage, divorce or children.
Equality may be the law of the land, but the tax code discriminates against queer couples, particularly where children are concerned. An LGBTQ or allied tax preparer will walk you through the tax implications of adoption, surrogacy and LGBTQ family planning expenses, so you understand which deductions are allowed for your circumstances.
New business owners and freelancers also benefit from professional advice. Navigating a 1099 landscape while determining home office expenses, crunching a qualified business income deduction and estimating your annual mileage while actually running that business is no small task, so many business owners pay a tax preparer.
Reporting non-traditional income sources
Queer millennials are more likely to side hustle than their cis, straight peers, as USA Today reports. This income might come in through cash, Venmo or even a crowdfunding platform.
Regardless of the source, any income you earn that has a paper trail should be reported to the IRS.
That includes money earned from not-strictly-legal means, like sex work. However, if you counseled a pal who needed professional advice and they treated you to lunch or gave you $20 in cash, you probably don’t need to report it.
You report crowdfunding income in one of two ways.
If it’s business income (say you raised money for an album your band was putting out and you are a self-employed musician), you’ll report it as business income.
Given that business crowdfunding campaigns tend to be for specific products or services, Estes recommends you raise the money and spend it in the same calendar year. The business expenses (putting out the album) will offset the earned income, so you’ll pay less.
If a crowdfunding campaign is for a personal expense, like surgery, you’ll have to report it as gift income.
If that surgery is for gender-affirming care, good news: The cost of hormones and affirming surgery have been deductible since 2011, making the IRS… pretty progressive, actually!
You owe money. Now what?
It’s cool — there’s a payment plan for that. No, seriously. The IRS and most states offer short-term and long-term tax payment plans that let you pay in installments.
Estes recommends paying as much of what’s owed as you can when you file. The IRS and your state will each mail you a bill for the remainder, and you can set up payment plans from there.
For federal taxes, you’ll be assessed interest of 0.5% per month on the balance, which is less than that pesky 5% “failure to file” penalty. So again: Filing on time and paying as much as you can up front actually helps you keep more of your money.
Investing in yourself: queer business deductions
Whether you run a small business or have a side hustle, writing off legitimate expenses saves you money. What counts as “legitimate,” though? It depends.
Categories like business mileage are fairly straightforward. If you drive to meet a client or pick up business supplies, you can deduct those miles. Just keep a paper log or use an app like MileIQ. Pro tip: Every Jan. 1, snap a pic of your odometer to know your starting mileage for the year.
Supplies, professional development and other categories are subjective. Both lawyers and drag queens have business supplies and professional development expenses, but chances are they’re going to look a lot different. As a general rule, the expenses should be for business only to be deductible. So yes, if those stilettos are only ever for your drag looks, you can write them off.
If you’re not sure whether you can deduct an expense, google it. Chances are someone else has asked the same question, and you can find the answer.
No matter what you’re writing off, keep good records and save the receipt — for at least three years, per IRS regulations.
One caveat on business deductions: It can be tempting to write off all the things, but this isn’t always the best move.
One, the IRS requires businesses to show a profit motive — basically, to prove the goal of the expense is to make money. You can have a profit motive and claim a loss for the year, particularly if you’re in early stages. If you can’t prove a profit motive, the IRS may decide your gig is actually a hobby. Hobbies don’t get tax deductions.
Two, Social Security payments are calculated based on your gross income. You’ll have higher Social Security payments when you retire if you claim fewer deductions now.
According to a study by the Williams Institute, 22% of LGBTQ+ people live in poverty. Until we correct the economic disparities keeping our community from thriving, tax credits can lessen the financial burden for LGBTQ+ folks.
The earned income tax credit (EITC) provides those who earn below a threshold with a credit. For 2021, this credit ranges from $1,502 to $6,728, depending on the number of children you have (zero to three or more). For 2021, EITC income thresholds are $21,430 for single or married filing separately, or $27,380 if you are married filing jointly.
If you don’t qualify for the EITC, don’t worry. The grab bag of tax credits has something for everyone! Tax credits range from retirement contributions to interest on student loan payments to green credits for electric vehicle purchases or solar panel installation to child- and family-oriented credits.
Don’t be intimidated by taxes
This tax season, don’t let taxes intimidate you. Instead, stand in your power. Understand the filing process, tax credits, tax deductions, how to handle that side hustle income, and where to go for tax advice and planning that respects your LGBTQ+ identity.
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