Tax tips for unmarried families

Combine your finances all you like, but unless you've got a marriage license, the Feds don't see you as a financial unit. Here's how my spouse and I handle our anomalous arrangement at tax time.

First, a brief recap of our financial circumstances.

We have combined all finances except retirement and investment accounts. Therefore, all income is considered "our money" and all expenses are shared. We make approximately the same amount of money. Gross household income is about $60K. We have one child together and own a house together. All charitable donations come out of our joint accounts, so could arguably be claimed by either one of us.

So, at tax time, who declares the kid as a dependent? Who deducts the mortgage insurance? Who deducts charitable donations?

This is the arrangement we've come up with to reap the maximum benefit from our two major deductions, the kid and the house. We have read the IRS documentation til we're blue in the face, and we're fairly sure the way we do it is legal.

1. The Kid
When I went back to work in early 2004, I signed up for a workplace Dependent Care Spending Account. We also decided that little L would be on my workplace health insurance, because it was a better deal than the insurance his papa's workplace was offering us. Unbeknownst to me, these moves made our tax decision for us. L is considered my dependent because I provide his insurance and because I deduct his childcare expenses. It follows that I declare Head of Household (with L as my qualifying dependent). I also claim the Additional Child Tax Credit, and the Earned Income Credit.

2. The House
Because I declare as Head of Household and M declares as Single, my standard deduction is higher than M's. I can't itemize because my standard deduction is too high. M, however, can itemize. So he declares the mortgage interest, and claims all charitable contributions as deductions. If last year was any indication, I'll get an enormous refund because I qualify for all those credits reserved for people who make next to nothing. Great, huh? M usually owes a little money, but we come out ahead.

I still can't believe we have to file like this. After all, because our money is shared, we BOTH pay the mortgage. We BOTH feed and clothe our son. We both donate to hurricane relief or whatever. But the IRS doesn't have a category for people like us, so we've had to divide it up. Maybe if more states pass Civil Union laws the Feds will be forced to change their language: Single, Head of Household, Couple filing jointly, Couple filing separately. But I guess then families with three or more equal partners will have to try to fit themselves into the wrong category, too.

[Remember, I'm not a professional. Seek the advice of somebody qualified before using my experience as a guide.]