March 05, 2014
Janis Cowhey, Tax & Business Services Partner, Interviewed in Think Advisor Article, "Honeymoon's Over: Helping Gay Couples Manage 2013 Tax Hikes."
When the Supreme Court ruled last June that same-sex couples vowing "I do" would have their unions recognized by the federal government, jubilant partners may have been unaware: Tying the knot also means saying "I do" to paying steeper income tax bills.
Complicating an already-complex scenario, in which most states don't recognize same-sex marriage, are changes - chiefly increases - to the massive U.S. tax code effective with 2013 returns.
For last year, the federal tax rate was raised by 4.6% to 39.6% on ordinary income above $400,000 ($450,000 for couples filing jointly). Investments-wise, rates on long-term capital gains and qualified dividend rates went up to 20% from 15%. And there are also new taxes related to the Affordable Care Act: a 0.9% Medicare surtax and a 3.8% tax on net investment income (both starting at the $200,000 income threshold; the 0.9% tax is applicable to neither estates nor trusts).
Janis Cowhey McDonagh, a partner at Marcum LLC and co-leader of its LGBT and Non-Traditional Family Practice Group, talked with ThinkAdvisor about the tax situation for wedded same-sex couples and filers in general. Here are highlights of that chat with the New York City-based accountant and attorney:
What’s the main difference about 2013 income tax that filers will discover?
All of a sudden, people are getting hit with a higher tax bill. Therefore, they need to have a conversation with their accountant and financial advisor to discuss priorities. Planning is always important; but this year, with so many new taxes, it's more important than ever.
Will affluent taxpayers have a rude awakening when they get their tax bills?<
Many will. A lot of people heard that taxes were going up, but now they're finding out how much they have to make the check out for. Everybody is going to call their financial planners about their portfolios and tax bill. That's why advisors need to work with accountants when creating a financial plan and ask: "Here's what I'm recommending the client invest in. What do these investments mean in terms of taxes?"
Do the changes in the tax code provide opportunities for advisors to rebalance portfolios?
Yes. We have the new 3.8% Medicare tax on investment income. If clients change their investments, they may be able to bring down their tax bill. You could get out of some current taxes if you invest in, say, long-term growth. Eventually you'll have to pay capital gains tax, but for now, you can get out of the Medicare tax. This makes it even more important than ever that the accountant and advisor are on the same page.