How do I handle a colleague's gender change when citing their paper?
Is it an option to ask M Smith if she would be ok if the first citation were to read as the following? 


  Smith, M. (published G.) 2014, recent advances in foo, international journal of foo sciences 12:56, 427-865


This would eliminate the only reason I can think of for misgendering the person, namely that readers might be unsure whether they are looking up the correct source. This would be a weak reason, though, since we have DOIs (Digital Object Identifiers) now.

Edited on second thought: What is the worst thing that could happen if you use the new name? Someone might find it more difficult to look up the paper; that's a minor inconvenience. Compare this to the frustration, if not anger and distress, that it would cause M. Smith to be referred to in cold print by a name that doesn't reflect her identity and that she is struggling to leave behind.