June, 2015 | robergtaxsolutions.com

I was sitting out on the deck with my husband and he asked me what I wanted for my birthday. I ran down my usual answers, “world peace, ending world hunger, etc.” He gave his usual answer, “Probably not this year.” I told him, “That’s alright, the Supreme Court just passed marriage equality, that makes my life easier. I’m happy with that.” He gave me that raised eyebrow look and said, “Care to explain that one?”

I’ve been married to this man for over 30 years so you might not think Obergefell v. Hodges will have much of an affect on me personally, but as a tax professional, it does. Here’s a little history of how legislation and the Supreme Court decisions have affected taxes over the past 11 years.

Massachusetts legalized same sex marriage back in 2004. That was the beginning of the crazy tax returns. You see, while you could be legally married in Massachusetts, the federal government didn’t recognize the marriage. So, you had to file as married on your state return and single on your federal. As a tax preparer, you had to prepare three tax returns instead of one. Back in those days I was an instructor for H&R Block. I remember teaching how to prepare that return in one of my classes. It was pretty crazy and very complicated. Living and working in Missouri, I didn’t see many Massachusetts returns, but we still have to know how to do them.

More states adopted gay marriage, but it was still illegal in Missouri. Couples were getting married in Iowa and living in Missouri, but they still couldn’t legally file jointly here in Missouri. Some of my business colleagues and I worked on a tax strategy to help couples who were “married for all intents and purposes but just not legally recognized in the state”. It was a good tax plan while it lasted, and for some couples it was actually better tax-wise than married filing jointly. But of course it didn’t solve the issues of Social Security, healthcare, or pension benefits.

In 2012, the First Circuit Court of Appeals ruled that the Defense of Marriage Act (DOMA) was unconstitutional. This issue was headed to the Supreme Court, but hadn’t been settled yet. Which was another tax headache. You see, if the Supreme Court ruled that DOMA was unconstitutional, it would affect tax returns, but you can’t change your tax return based on the first circuit court of appeals. But–there’s a three year limit to amend a return for a refund. So, if you didn’t want to miss out on a potential refund for 2009, you had to file something called a “protective claim for refund.”

That meant, you were filing an amended return based upon something that hadn’t happened yet, hoping it would. The IRS would just stick those returns in a drawer until (or if) the issue ever came up. You had to write: “Protective claim for refund contingent upon the US Supreme Court decision on the First Circuit Court of Appeals case regarding the Defense of Marriage Act, Gill v. OPM.” If you didn’t work it just right, the IRS could just reject your claim.

In June of 2013, the Supreme Court held in United States v. Windsor that the federal government was required to recognized same sex marriages.(I know, I know, what happened to Gill? Windsor was heard first so that became the landmark decision and the Gill petition was turned down in light of the Windsor ruling. Your Amended return claiming Gill would still be good because of Windsor though.) This meant that if a couple were legally married in Iowa, for example, that they would not only be allowed to file a state return as married filing jointly, but they could also file their federal tax return as married filing jointly.

The Windsor case had a lot of consequences for preparers. In places like Massachusets where same sex marriage was legal, then the couple could just file as married filing jointly for both the state and federal returns. But in other states where same sex marriage wasn’t allowed, it was wait and see status while the legislatures battled it out. Here in Missouri, if you can file as married on your federal return, you filed as married on the state return. Next door, in Kansas, you filed as married on your federal return, and single on your state return. Those of us who prepare multiple state returns had to keep up on all of that. It was a headache keeping track of the state rules. Basically, in 2013, we had a flip flop of the tax rules–instead of filing a joint state return and separate federal returns like we did with Massachusetts in 2004, we were now preparing joint federal returns and separate state returns.

So now, with Obergefell v. Hodges I’m back to filing normal returns for everybody in every state. I get to ask normal questions like, “Are you single or married?” And I don’t have to ask, “Are you gay or are you straight?” Because quite frankly, whether you’re gay or straight should have absolutely nothing to do with your tax return.

How much money should you save?

10%. Ten percent of your income should go into savings.

Now people who see that tend to fall into three groups. Group one says – “Okay, that seems right by me.” Good, that was easy. Group two says, “But I’d like to save more than that.” I say to them, “Go ahead, save more. That’s a good thing.” Then there’s group three. They’re saying, “You must be nuts, I can’t possibly save 10% of my income!” This post is for you.

Seriously, if you’re living paycheck to paycheck, barely making ends meet, you’re the one who needs a savings cushion the most. Think about it. A rich person has some car trouble–it’s an inconvenience at most. A poor person gets some car trouble and it can ruin your life. Let’s say you have no savings and your car breaks down, it’s going to cost $1000 for fix. You don’t have the money. You can’t get to work without the car so you lose your job. No job, you can’t pay the rent, you get evicted. Crazy right? But this stuff happens to real people all the time.

A little bit of savings cushion can prevent catastrophe.

But 10%, that almost seems impossible. I know, but the lower your income, the more you need that cushion. Let’s say you’re working and your take home pay is $300 a week, that’s $30 you need to save. Now I’m talking about regular saving here, not sticking money into an IRA. Before you start saving for retirement, you need to have your behind covered for emergencies first.

If you save $30 a week for a year, you’ll have over $1500 socked away. It’s a lot easier to deal with car trouble with $1500 in the bank than it is with zero. (Believe me, I speak from experience. I’ve had car trouble when I’ve been broke, and car trouble when I’ve had money. Having money is way better. Way better.)

Now you might not have a problem, you may have that $1500 saved up and then save up another $1500 the next year and then you’ve got $3000 in the bank. How awesome is that?

Or maybe you hit a rough patch and your savings goes back down to zero, but hopefully the rough patch was a little easier because you had some cash stashed away.

So how do you save 10% of your income? You’ve got to pay yourself first. I know, you’re thinking I’ll pay my bills and then save the rest. I’ve tried that, I always wound up with no money at the end when I tried to save that way. Pay yourself first. I don’t care if you don’t have a fancy bank account. You can stuff it in your mattress for all I care. But stash it somewhere. (Okay, I do like bank accounts, but if you really have no money, some banks won’t even look at you without $1000 or more so I understand if you don’t have a bank account at first.)

Set goals for yourself. You can make up your own goals, but I got these from a financial seminar I took once. I don’t think the speaker would mind if I shared them:

Goal 1: save $100

Goal 2: have $1000 saved

Goal 3: have $5000 saved

Goal 4: start investing in a retirement account in addition to your savings.

If you’ve already reached all these goals then congratulations, you’re already on the right track. You want to keep saving 10% of your income, but you can be putting some of that savings into retirement while still adding to your regular savings as well. I like to see 6 months to a full year of income in your savings account.

You don’t get any tax breaks for saving. It’s not sexy either. But having some money set aside for emergencies is probably the smartest financial decision you’ll ever make. (Well, and smart is sexy right?)

Month: June 2015

Why the Supreme Court Ruling Makes My Life Easier: A Tax Preparer’s Reaction to Obergefell v. Hodges

How Much of My Income Should I Be Saving?