by Per Larson and Dennis Mack

April 18th is the best date to plan taxes - for next year. The lessons of last year are fresh. Motivation is high. Now is an especially good time to find out ways in which legal discrimination can be transformed into tax advantages.

First, recognize that marriage has created a tax penalty for over three decades. Unless one spouse has a much higher income than the other, marriage provides no benefit from averaging - only a penalty.

Remember too that the $125,000 exclusion on gains from the sale of a principal residence can be taken only once in a lifetime by a married couple after age 55, but each partner in an unmarried relationship has a right to the full exclusion.

Now Newtonian tax proposals for a $500 tax credit per dependent child are part of a fundamental change in taxation aimed at helping people with children at the expense of the unmarried.

As an entrepreneur, you may have greater flexibility to provide a couple-oriented benefit package. Your partner may help you out regularly enough to be considered full time help. As the only person other than yourself in the enterprise, you can be generous in your payment of salary, health insurance and retirement benefits; after all, your partner is family. Keep in mind that the IRS may scrutinize your payments against standards or reasonableness and apply standards of equity as your payroll expands - requiring you to give comparable benefits to the new employees.

If you take your employer's offer of domestic partnership benefits, be prepared for a W-2 reports it as extra taxable income. If your partner has cash available, they can pay you for the coverage to avoid gift tax issues and

to get the deduction if they're self employed; just make sure this is done in the year the benefits occurred.

With a New York couple where one has a high income and the other is not working and has large medical bills, the partner who's ill can draw on public programs (like Medicaid, free drugs, clinic services and home care) even though they truly live together - because society doesn't recognize the relationship. Note also that current legislation proposes in addition to make proceeds from accelerated benefits or viatical settlements tax-free.

Moreover, a partner who picks up more than half the expenses of the other may claim the partner as a dependent. If one partner has medical deductions in excess of seven and one-half percent of income, additional income shifted to him may be sheltered at a lower tax rate. Medical deductions should also be defined broadly, starting with the number one neglected deduction: medical travel. Expenses, though not reimbursed under insurance, may qualify as a deduction if properly documented. While food and over the counter medication aren't deductible, prescribed nutritional supplements or pain and other comfort services can be.

We can benefit from income differentials because the IRS scrutinizes transactions between family members and holds them to an "arms-length" standard - but we are treated as strangers to our loved ones and that standard is not triggered by our loving relationship. Never do things purely for tax reasons but structure your finances to maximize tax advantage.

The beginning of the tax year is the time to plan who would benefit most by incurring deductible expenses (e.g., business travel, books, computers) and who could absorb extra income at a lower effective tax bracket (e.g., rentals, investments). There are many grey areas where a wealthier partner can redirect income to a partner with lower income. Even though unequal sharing of living expenses may technically constitute a taxable gift, in practice this is rarely challenged. Sales between partners of hard-to-value items where there's very little market (such as artwork, business intangibles) can be a mechanism by which value can be safely transferred in the long-run. A privately held business offers many opportunities where valuation may be to mutual advantage.

Under some circumstances, a same-sex couple wanting country and city homes might buy them separately and rent them to each other vs owning each property jointly. Each partner now owns a rental property on which can be deducted maintenance, grounds, upkeep, cleaning, and inspection visits up to the income received. If the property has fallen in value and is sold after being a rental, even the fall in value is a deduction against the capital gain.

Unmarried status can have disadvantage in other tax areas. We must keep particularly accurate records on improvements to jointly held property. Otherwise upon the death of one the IRS may erroneously assume that the dead partner made all the contributions for the purchase. A similarly complex situation can materialize if a gay couple wants to sell a jointly held home after age 55, taking advantage of the once in a lifetime exclusion on real estate capital gains.

Lastly, unmarried wealthy gays cannot pass on estates to their partners tax-free unlike marrieds. Keep a watch on Washington here: the Republicans are proposing doing away with the estate taxes now paid by the top 4% of the population. This illustration of how tax rules can dramatically change shows why it's important to include tax law change in our agenda for fair treatment of gays & lesbians, and why our finances are unique and require analysis that takes into account our special situations.