Tax Savings for Domestic Partners

¿ Misc ellaneous expenses. This category of itemized deductions includes things like the cost of investment and tax advice and unreimbursed employee expenses. And, you get a deduction here only to the extent that the total of qualifying expense exceeds 2% of your adjuste d gross income (AGI). By combining both partner's income and expenses on a fantasy joint return, the write-off might be bigger¿or smal ler¿than the combination of two individual returns. Miscellaneous Deductions

¿ Roth IRA. This is the most mind-boggling anomaly we've come across. Under federal law, the ri ght to contribute to a Roth IRA for 2007 is phased out as AGI rises from $99,000 to $114,000 on a single return and from $156,000 to $166,000 on a joint return. If Pat and Chris each have $90,000 of AGI, each can contribute $4,000 to a Roth for 2007. But, on a joi nt return, the combined income of $180,000 prohibits the contribution. On the bright side, California has no penalty for excess cont ributions, so there would be no penalty (as there is at the federal level). But, California says the couple would have to keep track of all income attributable to that excess contribution. While payouts from the Roth will be tax-free on the federal level, Californ ia says income attributable to the excess contribution will be taxed by California. Investment and Retirement Savings

What to do

If you are forbidden to file a joint federal return but required to file the equivalent of a married-filing-jointly or married-filing-separately return in your state, the first step i s to be sure you understand the rules in your state. Here are the web sites for your state's tax department.

California Franchise Tax Board

Connecticut Department of Services

District of Columbia Taxpayer Ser vice Center

Massachusetts D epartment of Revenue

New Jersey Taxation

Vermont Department of Taxes

Tax software, such as TurboTax (for wh ich Kiplinger provides in-product and Web content), will greatly simplify the process of completing the mock federal return. Should you send that return to the state? That depends on where you live. Vermont, for example, wants to see it; the District of Columbia d oes not. TurboTax has special instructions to help domestic partners, those in civil unions and married same-sex couples complete th eir state returns.

Win or lose?

A big question, of course, is whether filing a joint return on the state level will save or co st you money. So much as been written about the so-called marriage tax penalty at the federal level-the possibility that a married c ouple pays more tax than the combined total that husband and wife would owe if they were still single-that you might assume you'll p ay more by filing jointly. That's not necessarily so. (Even at the federal level, for example, more couples enjoy a marriage tax bon us than suffer a marriage tax penalty.)

A study by California's tax agency found that about 60% of registered domestic partner s will save an average of nearly $500 by filing jointly, for example, about 12% will pay more (averaging about $750) and the rest wi ll basically pay the same as if they continued filing as single taxpayers.

At the federal level, most married couples pay less tax by choosing to file jointly rather than taking the married-filing-separately route. At the state level, however, married-filing -separately often pays off in a lower tax bill. So, you'll probably want to tackle another extra tax form: the equivalent of married -filing separately. It might save you money. And, if you're using software, like TurboTax, it shouldn't be too onerous.

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