5 Tax Mistakes Investors Make

Richard Barrington for Fox Business writes:  Taxes are an emotional issue. Sometimes, people's focus on avoiding them can distract them from what is in their best interests.

Here are five mistakes you should avoid when managing the taxes on your investments.

1. Overlooking taxable retirement distributions

Qualified retirement plans have certain tax advantages. Money going into a traditional IRA or a 401(k) can be deducted from your income, and earnings on your investments within these plans is tax exempt as well. There is a catch, though: The distributions you ultimately take out of these plans is taxed as income at that point.

This has a couple implications. First, when you are doing your retirement planning and figuring out how much income you'll need, be sure to account for the fact that money coming out of a retirement plan will be taxed. Second, depending on your tax bracket, there may be a disadvantage to having growth investments in your IRA, since any gains will ultimately be taxed as income, and not at the capital gains rate.

2. Trying too hard to avoid capital gains taxes

Speaking of capital gains, people are sometimes reluctant to sell stocks when they are up because realizing the gain will make it subject to taxation. However, it's important not to let the tail wag the dog. Paying a 15% tax on a 50% gain will actually cost you only 5% of the total value of the investment. You could lose much more than 5% if the investment goes south on you while you are putting off selling.

3. Harvesting capital losses carelessly

Some investors like to "harvest" losses near the end of the year to offset gains. When you do this, keep in mind the potential opportunity cost. Harvesting a 20% loss would have a tax benefit equivalent to less than 4% of the investment's current value, so you shouldn't sell if you think that stock might bounce back by 4% or more during the 30-day waiting period before you would be permitted to repurchase the stock.

4. Gambling on off-shore accounts

Cypress is an example of an off-shore haven that was popular with people trying to shelter money from their own governments. But when the banking system in Cypress was in crisis, many of those foreign accounts were assessed huge levies to bail out the banks. Those investors probably wish they had just paid their taxes in the first place. Tax evasion is not only cheating, but if it involves moving money out of the country, it also entails giving up the protections of U.S. law and FDIC insurance.

5. Forgetting Treasury securities

Considering how some people go overboard to avoid taxes, the tax benefit of owning U.S. Treasury securities is surprisingly overlooked. Income on these securities is subject to federal taxes, but exempt from state and local income taxes. This might be especially relevant now because Treasury yields have been rising while CD rates have not. So a five-year Treasury might be an attractive income alternative to a five-year CD, with the added benefit of a break on state and local taxes.

The bottom line is that tax considerations should not be blown out of proportion. They should be quantified, and then judged in connection with the risk and return potential of each financial decision you make.

College Tax Strategy: Wipe Out $25,000 Of Capital Gains Per Year

Troy Onink for Forbes writes:  Many families simply earn too much for their child to qualify for need-based college aid, so they need to shift their focus to what I call tax aid; tax savings that help lower the overall cost of college. With the stock market at all-time highs, parents can combine their investment gains with this tax strategy to wipe out $25,000 in capital gains each year while a child is in college. That’s a pretty good way to save for college, and it can pay dividends in retirement, too.

In the following hypothetical example you will gift your daughter appreciated stock or other investments like mutual funds or ETFs, and your daughter will use the standard deduction, personal exemption and American Opportunity Tax Credit to offset $25,000 of long-term capital gains in a single year.

Standard Deduction and Personal Exemption

Typically parents will claim the $3,900 personal exemption for their child because the parents are providing greater than half of the child’s support throughout the year. However, during the college years, if your daughter uses her own income and assets to provide more than half of her own support (roughly half the total cost of college), then she would also be able to claim the personal exemption of $3,900 (for 2013) for herself, instead of you (the parent) claiming it.

The standard deduction (for 2013) for a dependent child (i.e. parents claim the personal exemption for the child), is the child’s earned income +$300 up to the maximum of $6,100. However, if you child is claiming the personal exemption for herself (i.e. passed the support test), then she can automatically claim the personal exemption and the full standard deduction of $6,100, regardless of earned income.

American Opportunity Tax Credit

Furthermore, as long as you do not claim the AOTC on your tax return, and do not claim your daughter as a personal exemption, she can claim the AOTC on her tax return.

The AOTC is worth up to $2,500 per student for four academic years. The income phase-out is $160,000 – $180,000 of modified adjusted gross income on joint tax returns. The amount of the credit is calculated as 100% of the first $2,000 in qualified tuition and fees costs paid, plus 25% of the next $2,000 paid for such fees.

Kiddie Tax

The kiddie tax is a tax on unearned income paid to minors. For 2013, the first $1,000 of such income is tax free, the second $1,000 is taxed to the child at his/her tax rate and all unearned income over $2,000 is taxed at the parents’ tax rate. The kiddie tax rule now applies to children under age 19 and full-time college students under the age of 24.

In 2013, the only way that college students under age 24 will be able to avoid the kiddie tax is if they provide over half of their own support from their own earned income (i.e., wages and salaries, not income from selling stocks). Notice that this is different from the support test for the personal exemption mentioned above which allows the student to use their earned income in addition to their unearned income and personal assets to pass the test.

Tax Saving Example

Let’s assume that you have been gifting your daughter appreciated assets ($14,000 per year, per donor permitted in 2013; $28,000 on joint return) over the years and your daughter will sell some of the assets during each year of college, realizing $25,000 in long-term capital gains. She will use the proceeds from the sale of assets to pay to enroll at a flagship state university with a total cost of attendance of $46,000 per year, including out-of-state tuition. View Forbes 2013 List of Top Colleges.

She will be able to take advantage of the standard deduction, personal exemption and the American Opportunity Tax Credit to offset her $25,000 of unearned (long-term capital gains) each year.

The standard deduction and personal exemption will reduce her capital gain income of $25,000 ($25,000 – $3,900 – $6,100 = $15,000), leaving a remaining taxable income of $15,000 that is taxed at the parent’s capital gain tax rate of 15%, for a total tax of $2,250.

Her overall federal tax of $2,250 will be eliminated by the American Opportunity Tax Credit (see the math below).

Long-term capital gains                                  $25,000

Student’s personal exemption                       –$3,900

Student’s standard deduction (single)         –$6,100

Net taxable income                                          $15,000

Capital gains rate (parents’ rate of 15%)          x 0.15

Gross federal tax                                             = $2,250

American Opportunity Tax Credit                ($2,500)

Federal tax due                                                        $0

For clients in the highest tax bracket who are subject to the 3.8% net investment income surtax, the capital gains tax would be 23.8%, or $5,950 per year on $25,000 in gains. The child’s tax would be $500 (20% x $15,000 = $3,000 – $2,500 AOTC = $500; and the 3.8% surtax would not apply to the child), thus saving the family $5,450 per year in taxes; $21,800 over four years of college, even under kiddie tax rules. Even with a modest rate of return, the $21,800 in tax savings should grow to $50,000 by the time most parents reach retirement age. This underscores my longstanding philosophy that college planning is retirement planning.

Would Eliminating The Property Tax Deduction Be A Big Deal?

Peter J Rielly for Forbes writes:  This just in from the Tax Foundation:

This week, the Senate Finance Committee is considering the elimination of major tax expenditures as a starting point for a comprehensive reform effort, including the property tax deduction for owner-occupied housing. According to new research by the nonpartisan Tax Foundation, however, the elimination of this deduction could have a negative effect on jobs and economic growth, if not supplemented with other pro-growth reform options.

The Tax Foundation’s dynamic economic model finds that the elimination of the property tax deduction would shrink the economy by $94 billion, reduce employment by the equivalent of approximately 216,000 jobs, and decrease wages by 0.4%. Moreover, even though initial static calculations estimate an addition $34 billion in federal revenue, a “dynamic” estimate which takes long-term economic interactions into account predicts a much smaller actual revenue increase of $11 billion.

The numbers are based on a study that is available here.  I was a little skeptical about the numbers, because based on a large proportion of the returns that I see, an awful lot of people are in the AMT.  If you are in AMT, the property tax deduction will likely be having no effect unless you are very close to being out of AMT.  AMT is the alternative minimum tax.  The alternative minimum tax is a total refiguring of your return at lower rates but with fewer or differently timed deductions.  Among the things not deductible for AMT is the itemized deduction for taxes.  In high income tax states the deduction for state income tax will bring a lot of people very close to AMT all by itself.

I spoke with Stephen Entin, one of the economists who worked on the study to get a better understanding of how they come up with the numbers. The IRS makes data files available to the public including a sample of a large number of returns.  The number varies from year to year.  Mr. Entin indicated that it is usually around 150,000 returns.  Identifying information has been stripped out.  I was thinking about buying one to play with on my own, but according to this, it costs about four grand.  The Tax Foundation overlays this data with its own software to recompute the returns based on different scenarios.  What gets me about this is that each of the 150,000 or so returns needs to somehow be individually recomputed. Mr. Entin was pretty confident that the modelers who do the software have the alternative minimum tax properly figured in, but he promised to check with them about it.

That recomputation of the returns only gives you a “static answer”.  A static answer assumes that you can change the tax law without changing anything else.  The Tax Foundation goes on to compute a “dynamic” answer, that accounts for behavioral changes:

The simulation model’s other major component is a Cobb-Douglas production function based on neoclassical economics and on empirical relationships observed since World War II. This part of the model relates inputs to output. It estimates how changed marginal tax rates, which alter work and investment incentives, lead to adjustments in capital and labor supplies and, in turn, new levels of output and incomes.

I put on my skeptic’s hat here also.  My impression is that most people are only dimly aware of the exact effects that being able to deduct costs have on their after-tax bottom line.  Based on my experience trying to sell the condo that turned me into an accidental landlord, the most important factor in home ownership decisions comes down to two words – granite countertops.  Mr. Entin explained to me that even if you are not really aware of the effect of deductibility, the institutions that loan you money will, at least indirectly, factor it in in deciding how much of a mortgage you can afford.  It’s a case of Adam Smith’s invisible hand at work.

The Tax Foundation released a similar study of the effect of eliminating the home mortgage deduction last week.

Minding Retirement Accounts in Estate Plans

Arden Dale for the Wall St Journal writes: When crafting their estate plans, some people neglect to pay much attention to how best handle their retirement accounts.

And that lack of attention to detail can create potential problems--such as higher estate and income taxes--for their heirs.

Many people often assume an estate plan is as simple as naming a beneficiary. In fact, it can include a trust to protect spendthrift kids or a spouse. Or a well-developed plan may have provisions to get a tax advantage by giving an account to charity.

Financial advisers are careful to review retirement accounts because they are so often ignored, even when they comprise a large share of an estate--sometimes the biggest portion it. A surprising number of clients, for example, forget to even name a beneficiary or change the names after a divorce.

"We're always asking clients about these accounts and they look like deer in the headlights," said Karen Altfest, principal adviser at Altfest Personal Wealth Management in New York, which manages around $1 billion.

Last week, one of her clients, a single woman with an account worth around $500,000, chose her nieces as beneficiaries after Ms. Altfest discovered she hadn't named anyone yet.

This year, changes to the federal estate tax add a new twist. Spouses need to review whether to name each other as beneficiaries now that they can share their estate-tax exemptions.

Michael Krol, a senior wealth counselor at Waldron Wealth Management in Bridgeville, Pa., said the new estate rules, known as "portability," will have the biggest effect on spouses with a combined net worth over $10 million and who have a lot of money in IRAs. In the past, his firm often counseled clients with this profile to create trusts to be beneficiaries of the IRAs.

"Now we're looking at all our client situations, and we would not want a trust to be a beneficiary," said Mr. Krol, whose firm manages around $1 billion.

Divorce that leads to a second or even third marriage is the source of many of the missteps she sees with clients' retirement accounts, said Susan C. Elser, an adviser with her own firm in Indianapolis, who manages $85 million. People either forget to change beneficiaries, or name the new spouse with no provisions to ensure their own children by a first marriage will get some of the money, she said.

Another common mistake, Ms. Elser noted, is when a person creates a trust in estate documents to distribute wealth to their children over time, and then naming the same kids as primary beneficiaries on a retirement account. All of the retirement money will go to the kids at once that way, circumventing the goal of the trust, she said.

To keep minor children from inheriting a large retirement account all at once--or any other heir not up to managing money--advisers sometimes recommend that an account name a trust as beneficiary. That way, a trustee can control when the funds get distributed.

Another common mistake with retirement accounts: Giving it to the kids when the charitably inclined owner could give it to a favorite cause instead. Charities don't have to pay income tax on retirement accounts they inherit, and the donor gets a charitable deduction for the gift.

"I can't tell you how many wills I've seen that leave some amount to charity when they have this lovely taxable IRA going to beneficiaries who will have to pay income tax on it," Ms. Elser said.

Lesley Moss, an estate attorney for Oram & Moss in Chevy Chase, Md., said more states have adopted rules to let someone with a power of attorney change beneficiaries. That's helpful as more grown children assist aging parents to get their retirement savings in order. An older person may have had 401(k)s with three or four different employers.

"We find where they moved from, say, Morgan Stanley to Merrill Lynch and didn't change the beneficiary; the power of attorney can help," Ms. Moss said.

Does today’s tax planning industry need an ethical revolution?

Written by Anthony Markham, Partner, and Dalila Ver Elst, Senior Compliance Officer at Maitland:  

FATCA and other similar agreements are on the march, and tax avoidance is high up the international policymaking agenda.

It will have escaped the notice of few that the practice of tax planning has recently come under attack, with the affairs of multinationals as well as private individuals and certain jurisdictions suffering intense criticism.

FATCA and other similar agreements are on the march, and tax avoidance is high up the international policymaking agenda.

As the discussion has progressed, much ink has been spilt over where the line between ‘legitimate’ tax planning and ‘aggressive’ or ‘immoral’ avoidance should be drawn, or whether the only line that should matter is the line of law.

One question less explored is what this all means for the tax planning industry itself; in other sectors, crises have historically prompted the development of new standards – so does today’s tax planning industry need an ethical revolution?

Globalisation has been a major catalyst for the debate: interconnected transactions and global supply chains mean that traditional boundaries have become fluid.

As readers will know from the flurry of coverage that has emerged in recent months, a corporate giant like Google is able to establish a structure which employs thousands of people in Britain, makes billions of sterling in revenue in Britain, but permits Google to pay a mere fraction of 1% of that revenue in tax to the United Kingdom because its transactions are formally executed in Ireland.

Many, of course, argue that this is wrong, that Google is shirking its responsibilities; that there is a moral imperative above and beyond the letter of the law for corporates and individuals to pay a fair contribution to society.

The tax planner’s response

Yet whether this moral obligation exists for Google or not, many in the tax planning industry would retort that ethics should play no role in the tax planner’s work above and beyond commitment to the law. Many regard the right to freedom of establishment as a crucial component of a free international market. There is a strong case that tax and regulatory competition restrains governments from excess.

As proponents of the rule of law, these practitioners view their role according to the principle that every citizen is entitled to know his legal position. Tax specialists must understand the myriad differences between systems, and as responsible advisors they are under a duty to help clients comply efficiently.

It is the duty of the tax planner – so the argument goes - to observe the rules and to guide others to take full advantage of the freedoms open to them. If there is something wrong with tax systems – a feature of the rules which allows for behaviour which is detrimental to society or even immoral – this should be dealt with through legislation and policymaking, and not rely on the voluntary behaviour of law-abiding taxpayers, or those that advise them.

Where should the industry go from here?

While one can argue that it is not for  tax planners  to impose a personal moral code upon their clients, it can often be appropriate to draw moral issues to the attention of clients within the advisory role.   By infringing generally accepted moral codes, the planner and client could incur financial and reputational costs.  Educating them on these risks enables the client to make more informed judgements that take into account the moral alongside the legal.

Whether the individual practitioner believes that ethical concerns should play a role in tax planning or not, there are basic ‘ethical’ principles that any good tax planner should adhere to, whether for reasons of ethics or simply prudence. The following three principles are a start:

The scrutiny test

The planner should ask whether the plan will withstand scrutiny.  If it relies upon non-disclosure, then the plan is unlikely to meet even the legality test, let alone be morally defensible.  If the plan is legal, but if revealed would be judged harshly in the public eye, then the plan may be of questionable morality.

The substance test

A plan without substance will be subject to criticism.  The “substance over form” tests utilised by the Court to cut down on tax avoidance often center around the question of whether the transactions described had commercial substance. To establish a plan which is not aligned with the underlying commercial reality is to take a commercial risk, regardless of its morality.

The hypocrisy test

Planning should not be manifestly hypocritical.  A plan which is designed to claim  benefits intended for  citizens who make charitable donations, when as a matter of commercial reality there is no underlying charitable donation, is likely to be regarded as a particularly ugly theft. The legislature has granted incentives to encourage morally admirable actions.  Abuse will invoke censure from others which will carry with it its own consequences, both social and financial.

While the academic debate over legitimate versus aggressive avoidance will likely continue for some time, the tax planning industry has a more urgent, practical need to seek out common ground and move forward. This is a start.

The Pros and Cons of Buying vs. Leasing Office Equipment

LOGAN KUGLER for Entrepreneur writes: The tax deduction was a key reason business consultant Marie Forleo decided to buy her computers and video equipment. Forleo runs MarieTV, an online television show that mixes tips on small-business operations and marketing with a healthy dose of inspiration. Launched in 2010, the show serves as a promotional vehicle for Forleo's New York City-based coaching and consulting business. "I knew I'd be using that equipment nonstop, and that it was a great tax write-off," she says. "Generally speaking, I like to own things I'm using all the time."

Like Forleo, Steve Sims bought all his equipment when he launched Bluefish, a luxury concierge and travel service based in Los Angeles. But for his new company, Taste of Blue, an online click-to-purchase site for luxury experiences, Sims chose to outfit nine staffers with leased computers, printers and a copier. "Most of your assets depreciate the second you buy them," he says of the money he believes he wasted when he opened Bluefish. "Now if we can lease it, we do." The upfront cash saved from leasing allowed him to invest more in the company and staff.

Buy

Pros
+ Better tax deduction
+ Total control of system
+ Can offer a competitive edge (in cases of unique and specialized equipment)

Cons
- Equipment is quickly out of date
- Higher upfront costs
- Maintenance and repair costs are extra

Lease

Pros
+ Smaller upfront costs
+ Easy to upgrade at any time
+ Flexibility to get the best tool for the job

Cons
- Usually more expensive in the long run
- There could be issues with availability
- Smaller tax write-off

Shawn Royster learned the hard way that leasing works best for Royster Productions, his Los Angeles- and Las Vegas-based film and TV production company. Typical jobs require "everything from cameras to A/V gear, projectors, sound equipment and lighting," he says. "And when we do live events--seminars, conferences and so on--we need computer equipment as well."

Originally Royster purchased his equipment, believing that ownership would increase his profit margins. But by the time the gear had paid for itself and the business was turning a profit, his gear was out of date and needed to be replaced. At that point Royster sold everything and turned to leasing.

"My world is all about the latest technology," he says. "As soon as you buy something, it's outdated." With leasing, however, Royster has access to the best new equipment available.

The decision to buy or to lease computers and other equipment necessary to do the job often comes down to the cost of total control vs. flexibility.

Both options have their advantages. Buying is straightforward: Just figure out what you need and look for the best price (or combination of price, warranty, service, etc.). You can deduct the entire cost of the equipment from your taxes in the first year, or you can choose to spread it out over several years.

Renting or leasing doesn't provide as big of a deduction. But there's a substantially smaller upfront cost, which frees up money to be invested elsewhere, while the cost of upgrading down the road is minimized.

BigTime’s Revolutionary New Mobile Time & Billing App Delivers Pro-Level Features and Online-Offline Access, Plus Seamless Integration with Phone and Email

Software, Inc., the leading cloud-based time and billing software, today unveiled a mobile app that makes it possible for small- and mid-sized professional services firms to go far beyond basic mobile time and expense tracking features to access higher-level, sophisticated project management capabilities previously unavailable to the industry on a mobile device.

“BigTime Mobile takes remote time management to a whole new level, putting pro-level time and expense tracking functionality in the palm of your hand,” says Brian Saunders, CEO and founder of BigTime. “When you look at the mobile T&B apps that are currently out there, this really is a game changer — the kind of mobile app the market’s been asking for.”

Users want more than a basic timer when they’re out on the road, Saunders says. “They want the ability to manage projects, have full access to staff/client contact information, and see data by the week, even month. And they want to do it in a way that’s organic to how they already interact with their smartphone. BigTime Mobile was built from the ground up to do all of that.”

Anytime, anywhere access to many of BigTime’s desktop features

What makes BigTime Mobile different, Saunders says, is that the app is so full-featured, and the interface so friendly, that users find themselves using it all the time — even at their desktop.

“We were surprised to discover that people aren’t just pulling out the mobile app when they’re on the go — they're using it when they're right next to their computer,” he says. “They actually like it better, and get their work done more quickly, when they can use their thumbs instead of a mouse and keyboard. That's the true promise of applications in the mobile space.”

BigTime Mobile provides anytime, anywhere access to many of the features of BigTime’s desktop version. Users can submit timesheets as easily as sending an email, and the expense entry function allows users to log billable or non-billable costs, offline or online, upload pictures of receipts and more. All QuickBooks data is pulled into the mobile app automatically.

“Frankly, there are a lot of really smart web applications out there with not-so-smart mobile companion apps. We wanted to create a mobile app that's as smart as our web app — one that could put powerful time, expense and customer/staff information capabilities between your thumbs,” Saunders says. “BigTime Mobileactually mimics the way you think about your day — your complete ‘track my time’ workflow, not just a piece of it.”

He adds: "This is where mobile T&B is headed. And BigTime Mobile is already there.”

Pro-level T&B features plus the convenience of mobile

BigTime Mobile, available at the iTunes App Store, is free to current subscribers of BigTime Express and BigTime IQ, the newly launched pro version of BigTime's web app that delivers enhanced invoicing and reporting capabilities, plus a modern interface, among other upgrades.

BigTime Mobile offers remote time tracking features, hassle-free expense entry features, and real-time team/project management. For more information and to see a demo video of the app, visit bigtime.net/mobile.

About BigTime Software

BigTime Software, Inc. develops practice management tools that help growing professional services firms track, manage and invoice their time. Its industry-specific solutions are designed to speak the language of more than a dozen business types, from accounting and IT services to architecture and engineering.

A Microsoft Partner Network member, BigTime is a Gold Certified Developer with Intuit, maker of QuickBooks, and is the only time tracking app embedded within Intuit’s own practice management system. BigTime serves the needs of OEM partners who license its technology as the critical component of their accounting and productivity suites. See more at bigtime.net/about.

The Legal Implications Of "United States v. Windsor" / same-sex marriages - DOMA - The Court's decisions leave many issues unresolved and questions unanswered, but at the same time provide opportunities for planning for same-sex couples.

Richard Cassell, Jay Rubinstein, Aaron Schumacher and Penelope Williams / Withers LLP writes: On June 26, 2013, the United States Supreme Court issued two landmark decisions on same-sex marriage. In United States v. Windsor 507 U.S. ___ (2013) (the "Windsor Decision") the Defense of Marriage Act ("DOMA"), which barred the federal government from recognizing same-sex marriages, was found to be unconstitutional by the Supreme Court by a 5-4 vote. Additionally, in Hollingsworth v. Perry 507 U.S. ___ (2013) (the "Proposition 8 Decision"), the Supreme Court opened the door for same-sex marriages to resume in California.

It is important to note that the Windsor Decision and the Proposition 8 Decision do not require that same-sex marriages be recognized in states that do not already allow it. The Windsor Decision merely requires that the federal government treat same-sex couples as married if they reside in states or foreign jurisdictions that allow same-sex marriages. At the present, 13 states and the District of Columbia recognize same-sex marriages, highlighting the division of the states on this issue.¹ The Court's decisions leave many issues unresolved and questions unanswered, but at the same time provide opportunities for planning for same-sex couples.

I. CASE SUMMARY

United States v. Windsor is essentially a tax case. Edith Windsor alleged that the federal government's refusal to acknowledge her marriage to Thea Spyer, her partner of forty-four years, violated equal protection principles of the United States Constitution. As the surviving spouse and executor of Thea's estate, Edith claimed she incurred over $360,000 in federal estate tax because the federal government pursuant to DOMA did not recognize her valid marriage under Canadian law. As a result, she was not permitted to take advantage of the unlimited federal estate tax marital deduction for property passing to her from Thea's estate. The United States maintained (eventually without support from the Department of Justice) that DOMA was entitled to a presumption of constitutionality and that DOMA's definition of marriage did not offend the equal protection clause. The two women lived in New York, where same-sex marriage is legal. Windsor won at the District Court level and before the Second Circuit Court of Appeals, paving the way for our country's highest court to hear the argument on the constitutionality of DOMA.

At issue in the Windsor Decision was Section 3 of DOMA, which provides a definition of "spouse" as "a person of the opposite sex who is a husband or wife." In its 5-4 majority decision written by Justice Kennedy, the Supreme Court declared Section 3 unconstitutional. While the effects are broad, the Supreme Court did not hold that all prohibitions on same-sex marriage violate the constitution, nor did the Supreme Court redefine marriage nationally. Instead, the Supreme Court respected the rights of the states to decide what marriage will be. For federal purposes, however, same-sex couples will now maintain the same status as opposite-sex couples; same-sex couples who are legally married and live in states which recognize same-sex marriages will be treated by the United States government as married, and will be afforded the same rights and protections as opposite sex married couples. These rights include well over 1000 possible benefits under federal law.

Notably, other parts of DOMA remain in effect including Section 2, which allows states which do not allow same-sex marriage to ignore the legal marriages or unions from other states around the country. This presents a conundrum for those same-sex couples who marry in a state which recognizes same-sex marriages and later move to a state where their union is not acknowledged.

At issue in the Proposition 8 Decision was a California law defining marriage as solely between a man and woman. In 2008, the California Supreme Court found that limiting marriage to opposite-sex couples violated the rights of same-sex couples under California's constitution and could not be used to prevent same-sex couples from marrying. Voters overturned this decision via Proposition 8 in the November 2008 election. In 2009, two same-sex couples challenged Proposition 8 in the United States District Court for the Northern District of California. In August 2010, the District Court struck down Proposition 8 and in February of 2012, the Ninth Circuit Court of Appeals upheld the District Court's decision.

In a separate 5-4 decision, the Proposition 8 Decision was dismissed for lack of jurisdiction by the Supreme Court. The Court declined to decide the merits and constitutionality of the voter-approved ban on same-sex marriage, and instead held that the appellants who supported Proposition 8 lacked the necessary standing to bring the matter before the Supreme Court. Effectively, the Supreme Court's decision left in place the lower court's determination that the state's voter initiative to ban same-sex marriage was unconstitutional and therefore reinstates California as the thirteenth state to allow same-sex marriages.

II. TAX PLANNING OPPORTUNITIES AND FILINGS TO CONSIDER NOW

Following the Windsor Decision, there are numerous opportunities and filings that should be considered both for same-sex couples and the family members of same-sex couples. While a number of issues require clarification, same-sex couples should consider the following.

A. Income Tax Issues:

1. Income Taxes for 2010-2013: For couples who were married in a U.S. state or a foreign country² that permits same-sex marriage, and who continue to live in a state that permits same-sex marriage ("Qualified same-sex couples") at the end of each applicable year, they may file or amend their tax returns for state and federal purposes as "married." Married couples may file either jointly or separately. In general, joint filing tends to favor spouses when one makes significantly more than the other spouse. This is because the IRS treats each spouse as having earned one-half of the income so a couple may be able to take advantage of a lower tax bracket. However, if both same-sex spouses are high income earners, they will be subject to the same "marriage tax"³ that traditional couples face.
   
   Qualified same-sex couples on extension for 2012 should file their taxes as either "married filing jointly" or "married filing separately."⁴ Qualified same-sex couples may want to amend their 2010, 2011 and if already filed, 2012 tax returns to reflect married status. As of yet, there has been no guidance from the IRS as to whether amending returns is voluntary or if it will be mandatory. At a minimum prior returns should be reviewed and draft returns prepared using married status to see if it is beneficial to file amended returns. Absent a protective filing for prior years, it is likely that the only years currently open for refund are 2010, 2011 and 2012.
2. Withholding: If you earn wages as an employee (i.e. receive a W-2 at the end of the year), you may want to consider changing your filing status and claimed allowances on Form W-4, which may affect the amount of tax that is withheld from your paycheck. If you pay quarterly estimated income taxes, you may want to consult a tax advisor about whether to change the amount of these payments.
3. Other Miscellaneous Tax Issues: Married couples filing jointly may combine both spouses' income and expenses when computing credits and deductions. Therefore, both spouses may combine their qualifying medical and dental expenses to determine if they meet the adjusted gross income ("AGI") limits.⁵ Qualified same-sex couples will also no longer be penalized by having to pay income taxes on the value of employer-provided insurance to an employee's spouse. Additionally, Qualified same-sex couples may be able to use pre-tax dollars to pay premiums on employer-provided health insurance for a spouse and may also now exclude gain from the sale or exchange of a principal residence up to the maximum of $500,000 if they file jointly.
4. Divorce Transfers: Property transferred between Qualified same-sex spouses because of a divorce is no longer subject to income or gift tax. Previously under DOMA, when a married same-sex couple divorced, transfers of real estate and other assets were taxable events.
   • Alimony: If alimony (sometimes called "spousal support") or separate maintenance payments are paid to a Qualified same-sex spouse under a divorce, separation agreement or court order, the payments are deductible to the person making the payments on his or her tax returns.⁶ The spouse or former spouse receiving the payments must report the payments as income.
   • QDRO: Certain retirement assets in the name of one spouse may not be divided without a court-issued Qualified Domestic Relations Order (QDRO). For Qualified same-sex couples who divorce, certain workplace retirement plans belonging to one spouse can be assigned to the non-employee/former spouse on a tax-free basis. A former spouse who receives benefits paid under a QDRO generally must report the benefits as income. If the employee contributed to the retirement plan, then a prorated share of the employee's cost is used to figure the taxable amount of the benefit.
   • IRAs: The transfer of all or part of an interest in a traditional IRA to a spouse or former spouse, pursuant to a divorce decree is not considered a taxable transfer.
5. Grantor Trust Rules: Generally, trusts are taxed as either "grantor" trusts where the taxes are paid by the trust grantor, or "non-grantor" trusts, where the trust pays its own income taxes. One way to cause grantor trust status is to have a spouse as a beneficiary of the trust. With the Windsor Decision, trusts that were previously considered non-grantor trusts may now be treated as a "grantor" trust if a same-sex spouse is a beneficiary. Same-sex couples should consult with their legal advisors to see if the income tax status of any trusts may have inadvertently changed.

B. Estate & Gift Issues:

1. Unlimited Gifts: Historically, one of the planning difficulties for same-sex couples was transferring assets from one spouse to another. After the Windsor Decision, Qualified same-sex couples may, subject to certain limitations, freely transfer unlimited property from one spouse to another without gift tax. This is particularly beneficial where spouses want to re-title real estate jointly with survivorship rights to ensure the surviving spouse is not displaced upon the first death.
2. Unlimited Marital Deduction: The Windsor case was ultimately about estate taxes. Where couples were married in a country or state that permits same-sex marriage, if an estate is probated in a state that permits same-sex marriage, then the surviving spouse can inherit the assets without paying estate tax using the unlimited marital deduction.
3. Portability: Qualified same-sex couples can inherit any remaining unused "applicable exclusion amount" that shelters a set amount of a person's assets from federal estate taxation (currently, $5.25 million). It is not necessary to provide for this in a last will and testament; the election is made on the deceased spouse's estate tax return.
4. Survivorship Life Insurance Policies and Annuities: Qualified same-sex couples can now easily obtain survivorship life insurance policies and annuities. These polices are especially beneficial if only one spouse is easily insurable.
5. Section 672(c) Applies: In many trusts, certain trustees may not be persons who are "related or subordinate" pursuant to Internal Revenue Code ("IRC") Section 672(c) to either the grantor or the beneficiary of the trust. Where the trustee is a same-sex spouse, previously they were usually not considered related or subordinate. However, a review of current trust instruments should be undertaken to see if it is necessary to appoint a successor or co-trustee.
6. Exercise POA to Spouse: A same-sex couple spouse may benefit from existing family trusts or estates. While a same-sex spouse could always benefit as a named beneficiary, often wills and trusts name a "beneficiary's spouse" rather than a specific person as a permitted beneficiary. A same-sex spouse may also be included as a permitted appointee as a "spouse" under a power of appointment included in a will or trust document. Instruments should be reviewed to determine if these rights exist.

C. Planning No Longer Available to Same-Sex Couples:

1. Chapter 14 Applies: Many common estate planning issues could be avoided when planning for same-sex couples because Chapter 14 of the Internal Revenue Code did not apply to same-sex couples. In light of the Windsor Decision, same-sex couples now also need to be aware of the pitfalls of planning with the following: GRITs; QPRTs with the sale of residences and remainder interests; IRC Section 2701 compliant preferred partnerships; "vertical slice" investment fund, carried interest transfer planning, sales to Intentionally Defective Grantor Trusts; buy-sell agreements and family limited partnership agreements under IRC Section 2703; valuation problems under IRC Section 2704; and marital deduction mismatch problems.
2. Grantor Retained Income Trust ("GRIT"): A GRIT permits a grantor to transfer assets to a beneficiary and retain the income stream from that asset. The goal is to freeze the value of the asset at the time of the transfer while permitting the growth and appreciation to occur outside of the grantor's estate. Congress recognized the potential for abusing this type of transaction and passed Chapter 14 of the Internal Revenue Code which limited the usefulness of this transaction among family members and related parties. However, since same-sex couples were not considered "related", this transaction was very effective for transferring property between same-sex spouses. Now that Qualified same-sex couples are considered married for federal purposes, they will no longer be able to use GRITs without application of Chapter 14.
3. Qualified Personal Residence Trust ("QPRT") and Residence Sales: This type of trust is designed to transfer the ownership of a residence to a trust beneficiary (i.e., a same-sex spouse) following the completion of a term of years during which the grantor is entitled to remain in the residence. The benefit is that real estate could be transferred at a low gift value. One negative issue with this planning is that the beneficiary receives the residence subject to carry-over tax basis and may incur a substantial capital gains tax on the subsequent sale of the residence. For same-sex couples, a common technique involved creating a QPRT and, prior to the end of the trust, having the grantor purchase the real estate back from the trust, leaving cash in the trust. Upon death of the grantor, the real estate would receive a step-up in basis. However, since Treasury Regulations specifically prohibit the grantor from buying the residence back when the trust beneficiaries are members of the grantor's family, this technique will not work any longer where the Qualified same-sex spouse is the trust beneficiary.

III. IMMIGRATION OPPORTUNITIES

DOMA and the federal government's long-standing position that same-sex marriages are not recognized under federal law and therefore not eligible for federal benefits has been extremely detrimental to same-sex couples seeking immigration benefits. As an example, the United States allows U.S. citizens to sponsor their foreign national spouses. Prior to the Windsor Decision, foreign nationals married to same-sex U.S. citizens had to resort to other immigration options, such as employment-based sponsorship which is often lengthy and costly. In the post-DOMA world, U.S. citizens may now sponsor their same-sex foreign national spouse using follow to join provisions. Foreign nationals who are coming to the U.S. through employment-based or family-based sponsorship may seek derivative immigration status for their same-sex spouse. However, binational couples who resorted to creative ways to navigate the U.S. intolerant policies will now have to carefully consider their past decisions when making future immigration decisions.

Qualified same-sex couples using these immigration opportunities should consult with their tax advisors prior to completion of the immigration planning as citizenship and green card changes can have a significant impact on their income and transfer tax planning.

IV. SOCIAL SECURITY & PENSION BENEFITS

1. Social Security: Under the Windsor Decision, same-sex couples who live in states that permit same-sex marriage will be eligible for Social Security Spousal Retirement Benefits, Spousal Disability Benefits, Survivor's Benefits, and Lump-Sum Death Benefits and those who live in states that do not recognize same-sex marriage will not receive those benefits.
2. Spousal ERISA Rights: The Employee Retirement Income Security Act of 1974 ("ERISA") provides special spousal rights with respect to payment of retirement benefits in the form of a joint and survivor annuity, and with respect to spousal consent to pay benefits to non-spouse beneficiaries for married participants in IRC 401(a) plans and other defined contribution plans.
3. Beneficiary Designations: The IRC provides for special rules when a spouse inherits a continuing interest in an ERISA-qualified plan or individual retirement account. These rules may be used to stretch the payment period of pension benefits that are not available to a person other than the spouse. Special attention must be given to pension beneficiary designations and payment schedules.

V. HEALTH BENEFITS

1. Health Care, COBRA: In states that permit or recognize same-sex marriages, group health care coverage and COBRA benefits will need to be offered to same-sex couples and families on the same basis as traditional families.
2. Family Medical Leave Act: The Family Medical Leave Act looks to a person's place of residence for determining benefits. Qualified same-sex couples who live in a state that permits same-sex marriage are qualified for coverage.⁷

VI. OPEN QUESTIONS

As the country tries to digest the Supreme Court's decisions, further guidance from all three branches of government will be necessary and welcomed, as individuals and their advisors grapple with issues left open by the Supreme Court's rulings. For example, is a retroactive refund from the IRS available because an employee paid extra taxes on the value of health benefits provided to his same-sex spouse? Conflict of laws analyses will need to be thoroughly examined since the decisions fail to address that the recognition of same-sex marriages will vary state to state. Each state has been left with the prerogative to determine what status to accord to same sex couples who want to solidify their relationships and which rights should accompany those relationships. But what happens if a same-sex couple is married in a state which recognizes same-sex marriages and moves to a state that either renders their marriage unlawful or is silent on the issue? Which governs, the principle of "place of celebration," "place of residency," or other measure? Other forms of "marital arrangements" were left unconsidered by the Windsor Decision. For example, how does one address the impact on civil unions, domestic partnerships, or similar state law or other country concepts? The full impact of the Windsor Decision will take years to ascertain as these and thousands of other questions are resolved. Same-sex couples are encouraged to maintain regular contact with their advisors to keep current with latest developments.

Footnotes

1 Same sex couples can legally marry in California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota (on 8/1/2013), New Hampshire, New York, Rhode Island (on 8/1/2013), Vermont and Washington, the District of Columbia, and certain Native American tribal jurisdictions.

2 Same sex couples may legally marry in Argentina, Belgium, Brazil, Canada, Denmark (excluding the Faroe Islands and Greenland), France, Iceland, Netherlands (excluding Aruba, Curaçao and St Maarten), Norway, Portugal, Spain, South Africa, Sweden, Uruguay (on 8/1/2013), New Zealand (on 8/19/2013, excluding Tokelau, Niue and the Cook Islands), and several parts of Mexico.

3 "Marriage tax" happens because joint return income thresholds (i.e., the income level at which the next marginal tax bracket applies), while higher than unmarried individual return thresholds, are not twice as high. Thus, some high-earning married taxpayers, whether they file as "married filing jointly" or "married filing separately," will pay higher rates of tax than they would if they were unmarried individual filers.

4 Please consult with your personal tax advisor for individual advice regarding your tax filings.

5 7.5% of AGI in 2012 and 10% of AGI in 2013.

6 Under DOMA, the spouse paying alimony could not deduct payments. 7 Covered employees must have worked at least 1,250 hours during the prior 12 months and be employed by a private company with 50 or more employees or certain public employers.

Purchase or lease a car?

Barry Dolowich for the Monteray Herald writes: Question: My wife and I are both shopping for new cars, but we cannot decide if we are better off purchasing or leasing. I use my car for both business and personal travel and my wife uses her car only for personal travel. For tax purposes, which is more advantageous, purchasing or leasing?

Answer: The choice between purchasing or leasing a car involves personal, economic and business considerations. Some of the general considerations for choosing (both tax-wise and economically) whether to buy or lease your car are:

· If the substantial use of your car is for business purposes, as compared to personal use, you generally can receive more of a tax deduction on the business portion if you lease the car.

· Even if the car is mostly for personal use, but is expensive, you still may achieve a better tax deduction by leasing instead of purchasing.

· Because cars depreciate in value so quickly in their newer years, short-term leasing makes sense if you tend to trade in cars often.

· If you generally hold on to your cars for five or more years, you may be better off purchasing the car. However, if you use your car primarily for business purposes, you may be economically better off with leasing to achieve higher tax deductions.

· Leases generally contain an "excess" mileage provision. This provision allows the lessor to charge you an additional amount per mile driven in excess of a stated allowed maximum annual mileage amount (usually 10,000 or 12,000 miles per year). If you anticipate driving in excess of the stated annual mileage amount allowed per the lease contract, you may be better off purchasing the car rather than leasing.

· Leases generally require less upfront money than a down payment toward the purchase of a car. Further, assuming the same initial cash outflow, the monthly lease payments are usually less than the monthly loan payments. Of course, at the end of the lease, you will have no equity or asset. Whereas, with purchasing, after you make your last loan payment, you will own the car outright.

As you can see from the above, the choice of whether to lease or purchase may not always be clear-cut. You may really need to crunch some numbers after serious consideration of your personal tastes, economic and business situation.

Intuit Celebrates Small Business Passion with Multi-million Dollar Campaign Around Football’s Biggest Game

MOUNTAIN VIEW, CALIF. — Intuit Inc. (Nasdaq: INTU) is taking small business owners off the sidelines and putting them in the starting lineup. Its new program shares small business stories with the world and recognizes their contributions with more than $25 million in rewards and offers to help them succeed.

Read more here: http://www.heraldonline.com/2013/07/31/5069723/intuit-celebrates-small-business.html#storylink=cpy

Read more here: http://www.heraldonline.com/2013/07/31/5069723/intuit-celebrates-small-business.html#storylink=cpyMOUNTAIN VIEW, CALIF. — Intuit Inc. (Nasdaq: INTU) is taking small business owners off the sidelines and putting them in the starting lineup. Its new program shares small business stories with the world and recognizes their contributions with more than $25 million in rewards and offers to help them succeed.

Read more here: http://www.heraldonline.com/2013/07/31/5069723/intuit-celebrates-small-business.html#storylink=cpyMOUNTAIN VIEW, CALIF. — Intuit Inc. (Nasdaq: INTU) is taking small business owners off the sidelines and putting them in the starting lineup. Its new program shares small business stories with the world and recognizes their contributions with more than $25 million in rewards and offers to help them succeed.

Read more here: http://www.heraldonline.com/2013/07/31/5069723/intuit-celebrates-small-business.html#storylink=cpyIntuit Inc. (Nasdaq: INTU) is taking small business owners off the sidelines and putting them in the starting lineup. Its new program shares small business stories with the world and recognizes their contributions with more than $25 million in rewards and offers to help them succeed.

Read more here: http://www.heraldonline.com/2013/07/31/5069723/intuit-celebrates-small-business.html#storylink=cpyIntuit Small Business Big Game by Intuit QuickBooks provides small businesses a platform to give them a voice and inspire others. Intuit and the world will then determine which deserving small business should win the opportunity of a lifetime – their very own 30-second television advertisement that will air during football’s biggest game on Feb. 2.

Intuit has been supporting small businesses for more than 22 years, and with Small Business Big Game it is shining a light on the 29 million small businesses across the U.S. and giving them resources that will aid in their success. Each participant will receive the Intuit Small Business Playbook and a special Intuit QuickBooksproduct offer as well as a chance to win other prizes including $1,000 grants, online advertising credits and advice from entrepreneur and program advocate Bill Rancic. They can also connect with, and learn from, other small business owners who have similar challenges and goals.

“Every small business has a unique story – and we want the world to hear it,” said Brad Smith, Intuit’s president and chief executive officer. “Small businesses account for 90 percent of the U.S. economy, but they rarely get credit for their tremendous impact. While one small business owner will score the ultimate touchdown, this program is one where everyone wins as it recognizes the contributions of small businesses and invites others to join the growing movement.”

Intuit has drafted key players to help with the program. Bill Rancic, entrepreneur, author and reality television star of Giuliana and Bill, will provide expert advice and share his experience as a small business owner. Renowned professional football coach and two-time Super Bowl winner,Jimmy Johnson will help recruit small businesses to enter and motivate them.

“I’m all too familiar with the challenges small business owners face, as well as the joy of success that comes along with taking a risk and setting out on your own,” said Rancic. “What I found is that you can’t do it alone. Through this program, Intuit is truly championing and fueling small business growth.”

Ready for Kickoff – How the Program Works

Starting today through Sept. 22, any small business owner who qualifies can visit the Small Business Big Game website to sign-up and tell their company story in 600 characters or less.

Just for entering, participants receive the Intuit Small Business Playbook – a tips and tricks guide on hot topics for small businesses. They also get an exclusive 30-day free offer for QuickBooks Online with the option to continue for 12 months at a 50 percent discount, including payroll and payments solutions. In addition, entrants will be eligible for random giveaways that include $1,000 business grants and autographed footballs by Jimmy Johnson.

During the week of Sept. 23, the businesses with the most votes from the public advance to the next round. They will then have the opportunity to tell the world more about themselves by answering questions about their business that also make them eligible for weekly sweepstakes. These include Facebook and Google advertising credits and a free year of QuickBooks Online. Among the many prizes in this round, one lucky winner will score a trip for two to New York, complete with tickets to the big game.

Then, on Oct. 28 approximately 8,000 Intuit employees worldwide will narrow down the competition from the top 20 small businesses to the final four, which will be announced on Nov. 11. Each of the four finalists will receive television advertising for their business including a professionally produced commercial, get to meet Bill Rancic and attend a viewing party of the big game in New York being held in their honor.

From Nov. 11 to Dec. 1 it will be up to people around the globe to vote and select which small business they want to see take the spotlight in February and have their story told. Whoever receives the most votes will win the grand prize and can expect to have their advertising broadcast during the third quarter of professional football’s championship game.

To find out more information or to enter, please visit the Small Business Big Game website atwww.SmallBusinessBigGame.com. To read the official rules go towww.SmallBusinessBigGame.com/Rules. To join the conversation, share on Facebook and Twitterusing #TeamSmallBiz.

d more here: http://www.heraldonline.com/2013/07/31/5069723/intuit-celebrates-small-business.html#storylink=cpy