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Understanding Tax Preparation for the LGBTQ+ Community

By Christopher Murray

  • PUBLISHED March 05
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  • 6 MINUTE READ

Tax season can be a stressful time for pretty much everyone. Suddenly, you need to know tax jargon that frankly, you likely ignore most of the year. Certain groups of people face an added level of dread come tax season, though.

The LGBTQ+ community has thankfully made many strides toward equal treatment, and with taxes, they've nearly gotten there. Still, there's an unease when it comes to finding financial advisors and tax preparers who understand the unique family situations and individual needs of the LGBTQ+ community.

Tax Filing Basics for Everyone

For many Americans, the tax system looks the same. The United States has a dual tax system, consisting of both state and federal taxes. You pay a certain percentage of your income (the higher your income, the higher your tax bracket1) to both entities, as well as Social Security and Medicare taxes.

When filing taxes, you choose between a few different tax filing statuses, including:

  • • Single: This is for unmarried individuals who file taxes based entirely on their own income.
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  • • Married filing jointly: LGBTQ+ couples and non-LGBTQ+ couples can opt to file jointly if they're legally married.
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  • • Married filing separately: Not all married couples must file jointly. This status is most commonly used by couples in the process of getting divorced.
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  • • Head of household: If one member of the couple makes significantly more money or supports more dependents, filing as head of household may make sense.

To lessen the tax burden on citizens, there are both tax deductions and tax credits in place. These reduce an individual's or family's tax liability (how much you owe the IRS every year). Tax credits directly reduce the amount of taxes you owe, while tax deductions reduce your taxable income, lowering your overall tax burden and potentially knocking you down a tax bracket. Deductions include expenses such as mortgage interest, medical expenses (including those related to transitioning) and business expenses.

Long story short, these filing statuses as well as deductions and credits are the same across the board, whether someone is part of the LGBTQ+ community or not. That said, it hasn't always been so easy. Until recently, same-sex couples, transgender folks and other queer-identifying individuals and couples weren't seen as entirely equal under the law.

Same-sex Marriage and Taxation

Since same-sex marriage became legal in the 2015 ruling by the Supreme Court, gay, lesbian, bisexual and other queer couples have enjoyed the same legal rights as married opposite-sex couples. So when it comes to taxes, same-sex and opposite-sex couples are seen as equals.2

Just like opposite-sex couples, same-sex couples can choose if they'd prefer to file jointly, separately or with one member as the head of the household. Working with a financial advisor or tax preparer—particularly one versed in LGBTQ+ issues—can help you decide how you'd like to file.

Taxation for Transgender Individuals

Transgender individuals face many hurdles in their day-to-day lives, but thankfully, taxes—as they are for most Americans—are relatively black and white. For trans folks who have undergone a legal name change, this is the name you should use on all tax documentation. For those who haven't, unfortunately, you must use your name given at birth.

One landmark legal decision that has been particularly beneficial for the trans community was the decision made in O'Donnabhain v. Commissioner of Internal Revenue. The court ruled that hormone treatments and other gender-affirming care qualify for the same medical expense deduction other medical treatments do. This reversed a previous stance that claimed gender-affirming care is a cosmetic choice rather than a medical necessity.3

LGBTQ+ Tax Issues and Tax Credits That Can Help

Legally, at least when it comes to taxes, the LGBTQ+ community is viewed in the same light as all other communities. But in reality, issues persist.

For starters, many LGBTQ+ individuals and couples have difficulties accessing financial services. A recent survey by the National Endowment for Financial Education® found that nearly one in every three LGBTQ+ people faces discrimination when seeking financial help.4

This discrimination makes it difficult for LGBTQ+ people to get ahead of their finances, especially when the LGBTQ+ community by and large faces a wage gap.5 So although their rights are nearly equal under tax law, many LGBTQ+ people never fully understand this because they don't have an easy, reputable way to access this information.

To provide a better understanding of the deductions LGBTQ+ individuals and families can take, here are some of the tax deductions that make the most sense for the community:

  • • Healthcare tax deduction: As stated above, trans patients can take the same healthcare deduction for their care as other folks.3 The deduction allows you to deduct medical care expenses that exceed 7.5% of your adjusted gross income.6
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  • • Adoption credit: Those who adopt children can qualify for a tax credit that reduces their taxable income the year they complete the adoption.7 LGBTQ+ couples and individuals who adopt can take advantage of this credit.
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  • • Earned Income Tax Credit: While not specific to the LGBTQ+ community, the Earned Income Tax Credit can prove beneficial, especially because the community faces higher levels of poverty.8 The credit provides a tax break for low- and moderate-income individuals and families.9

Tax Resources for the LGBTQ+ Community

For individuals in the LGBTQ+ community, understanding the tax system can be complex, and finding an advisor to help you can be difficult. The resources below can help you get the info you need to file your taxes successfully:

  • • Marcum LLP's Modern Family & LGBTQ Services: Marcum was one of the first accounting firms in the country to specifically address LGBTQ+ financial planning. The firm provides tax planning and other financial services to all members of the LGBTQ+ community.
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  • • Forbes' Tax Notes Talk Podcast: This Forbes podcast episode addresses taxes for the LGBTQ+ community and explains how certain legal rulings have impacted the tax system.
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  • • Christopher Street Financial: Christopher Street is a financial advisor firm that started with the goal of helping the LGBTQ+ community better understand their money. Today, they provide a full suite of financial services.
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  • • The Trans Capitalist: Started by a trans activist and financial expert, the Trans Capitalist provides one-on-one financial coaching for the LGBTQ+ community as well as low-cost e-books and courses dedicated to helping LGBTQ+ folks understand everything about their finances.
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  • • Queer Money Podcast: This podcast is dedicated to educating the queer community on various money topics. There's a huge archive of topics to choose from.

Gain Financial Confidence Preparing Your Taxes

LGBTQ+ folks have many of the same tax rights as those outside the community, but seeking help to understand those rights and successfully file is another story. To find a reputable financial advisor, make sure they're licensed and ask them ahead of time what their experience is with the LGBTQ+ community.

Additionally, saving and managing your money in the right place always helps come tax time. Synchrony offers a high yield savings account with a competitive interest rate on deposits, helping those within and outside of the LGBTQ+ community boost their savings. Whether you're saving to pay a forthcoming tax bill or need an account to deposit a refund, it's a great option to consider.

 

Christopher Murray is a professional personal finance, sustainability and LGBTQ+-focused writer who enjoys writing about everything from budgeting to unique investing options to how sustainability is the best savings tool around. He also writes extensively on finance and advocacy for the LGBTQ+ community. You can find his work on sites like Bankrate, MoneyCrashers, FinanceBuzz, Investor Junkie and Time. Learn more about Christopher via LinkedIn.

 

READ MORE: Are LGBTQIA+ Individuals Truly Equal? Exploring Housing and Financial Hurdles

 

Sources/references

1. IRS provides tax inflation adjustments for tax year 2024. IRS. November 27, 2023.

2. Obergefell et al. v. Hodges. U.S. Department of Justice. March 2015.

3. O'Donnabhain v. Commissioner. IRS. November 21, 2011.

4. Nearly 1 in 3 LGBTQIA+ Respondents Say They've Experienced Discrimination, Bias in Financial Services. National Endowment for Financial Education. June 24, 2022.

5. The Wage Gap Among LGBTQ+ Workers in the United States. Human Rights Campaign. Accessed January 9, 2024.

6. Topic no. 502, Medical and dental expenses. IRS. November 16, 2023.

7. Topic No. 607, Adoption Credit and Adoption Assistance Programs. IRS. January 3, 2024.

8. LGBT Poverty in the United States. The Williams Institute. February 2023.

9. Earned Income Tax Credit (EITC). IRS. September 20, 2023.