Atlantic Capital Management

Atlantic Capital Management (88)

Friday, 22 November 2013 00:00

Federal Tax Law and Same-Sex Marriage

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This past summer, the Internal Revenue Service and the Treasury Department announced that couples married in jurisdictions that legally recognize same-sex unions will, commencing with the 2013 tax year, be classified as “married” for Federal tax purposes. This policy change not only affects those couples residing in states where same-sex marriage is legal, but extends to couples who were married in a supporting jurisdiction but physically reside in a jurisdiction that does not support same-sex unions. Currently, 14 states support legal same-sex marriages: Massachusetts, California, Connecticut, Iowa, New Jersey, Delaware, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Maine, Maryland and Washington comprise the complete list. As we approach the end of the 2013 tax year, we thought it might be helpful to recap the changes, and talk a little bit about what to expect next year if you’re filing for the first time as a same-sex couple.

Taken at face value, the changes are pretty straightforward: as part of the new ruling, same-sex couples will be classified as “married” by the IRS, meaning that same-sex unions will be treated the same as “traditional” marriages from a Federal tax classification standpoint. This includes income taxes, gift taxes, and estate taxes, and also encompasses all areas of IRS tax law where marriage classification is a factor. Personal exemptions, dependency exemptions, filing status, standard deductions, IRA contributions, child and earned income tax credits, and deductions based on employee benefits are all driven by marriage classification when filing Federal taxes. Under the new ruling, legally-married same-sex couples are now able to file using either the “married filing jointly” or “married filing separately” status available formerly only to those partners in “traditional” unions.

As with seemingly everything related to the IRS, however, there are some wrinkles. First, the ruling applies only to legally-binding same-sex marriages, regardless of domicile. Domestic partnerships, civil unions, and other common-law relationships do not qualify. Secondly, and perhaps most importantly, the new ruling requires that partners in a same-sex union must change their Federal tax status from “single” to “married.” With this change in status comes the very real possibility that marginal tax rates may change unfavorably, and eligibility for certain exemptions and the classification of certain types of employee benefits might be compromised. Given that no one likes to be surprised at the last minute when the IRS is involved, we advocate getting ahead of the status change early, and understanding how it will affect your tax bracket and eligibility going forward. While fairly uncomplicated scenarios may not require the services of a tax preparation specialist, we strongly advise seeking advice from a qualified tax attorney or CPA if you suspect (or discover) that your change of status may have unanticipated downside. If you’ve got a significant estate, or are in a situation where changes to gift-tax status brought about by the new classification might come into play, it’s probably best that you consult a professional who can help you understand the nuances.

Finally, several of the states listed above legalized same-sex unions a number of years ago; as a result of the statute of limitations incorporated as part of the new ruling, partners in same-sex marriages can choose to file amended returns for tax years 2010, 2011, and 2012 if they so choose (and if the obvious benefit of doing so exists!).

For more information about tax and estate planning for the same-sex IRS classification change, including referrals to qualified CPAs and tax attorneys, we invite you to contact us to schedule a free and confidential consultation.

Wednesday, 30 October 2013 00:00

Financial Planning for College

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As summer comes to a close it can only mean one thing: hundreds of thousands of college students from all over the nation and the world will be returning to the Commonwealth to pursue some form of higher education. And while most of those students are looking forward to learning new things, meeting new people, and crisp Fall afternoons tailgating (we’ll skip over the part about winter parking bans for now), many parents are pondering how, exactly, they’re going to pay for their kids’ four-year excursion to the land of higher learning. As a popular radio commercial so aptly puts it, “This is the time of year when the logo on the sweatshirt starts appearing at the top of the bill!”

At Atlantic Capital Management, we help many families effectively plan and pay for college. In our experience, there is no “magic bullet” for college financing; like most other forms of investing, it requires planning, due diligence, and willingness to stay focused on the goal: paying for your kids’ education without going broke (or bankrupting them) in the process. Below are some tips, gathered from our direct experience, for effectively planning for and managing the college funding process.

It’s never too early to start: As with most investment scenarios, it’s wise to let the power of time and compounding work in your favor when it comes to college planning. The average yearly cost for a private four-year institution is now over $32,000. The sooner you can get started on saving for college while your children are still young, the more time you’ll have to make that money work for you. Invest what you can afford to, and make adjustments as life circumstances change.

Do your research: Your kids aren’t the only ones who should be hitting the books. New college financing options hit the market every year, and you should take the time to keep up with the changes and implement them, as necessary, in your portfolio. “Tried and true” instruments like 529 plans have been enhanced by things like the Coverdell “college IRA,” which allows for tax-free withdrawals for tuition, books, fees, and housing. Do your research, or consult your financial professional.

Understand the financial aid options: Most families assume that they won’t qualify for financial aid. In reality, even the top-tier institutions give a large percentage of students some kind of aid. So if you’re facing a near-term tuition scenario, file that FAFSA as early as possible! Carefully evaluate your options for grants, scholarships, and loans. Many families can put together an effective “hybrid” college finance plan even when faced with a short time frame. Work closely with the financial aid offices at prospective schools.

If you’d like to learn more about our approach to helping families pay for college, please call us at (508) 893-0872 to schedule a free consultation.

 

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