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Entries in federal tax (3)

Tuesday
Aug012017

Return to Windsor: A Novel Tax Code Correction

Tax Law Certified SpecialistCalifornia Bar Certified Specialist in Tax Law

 

by Michael Hackman

818.907.3279

 

 

 

Here’s the next chapter in the saga known as Edith Schlain Windsor v. The United States of America. (For a quick recap, please read Tax & Estate Planning – Small Win for Same Sex Couples?)

Tax Refund for Same Sex Married Couples

Two representatives of the state of Massachusetts, Senator Elizabeth Warren and Congressman Richard Neal, have introduced a new bill, the Refund Equality Act, to allow same-sex married couples to amend their tax returns as far back as the date of their marriage. But what does this mean, exactly?

The backstory:

Current law allows any married couple who previously filed tax returns as individuals, to amend their returns to file jointly. They may amend up to three years of filings.

The U.S. Supreme Court’s decision to overturn the Defense of Marriage Act (DOMA) in 2013 (this time it was the U.S. v. Windsor), and its follow-up landmark decision in Obergefell v. Hodges in 2015 (which recognized same-sex marriage as a fundamental right protected by the U.S. Constitution), meant, among other important considerations, that gay married couples in any U.S. state could finally match their straight counterparts when it came to yearly tax savings.

But the three year cap created a problem. Same sex couples were out of luck when it came to tax refunds for the years prior to the 2013 Windsor decision, if they were married before then – even though DOMA and bans on gay marriage were deemed unconstitutional.

Revising Tax Code A Matter of Equal Rights

Proposed Bill Tax Refund for Gay Married CouplesThe Refund Equality Act of 2017 seeks to make amends, literally and figuratively. In a press release, Congressman Neal stated:

This bill would codify into law an important correction that would enable same-sex married couples to go back and claim the tax refunds and credits for which they qualify. The Supreme Court has ruled as such, and now it's time for Congress to act and make sure all Americans are treated with the fairness and equality they deserve under the law.   

Before and after the Windsor decision, the Internal Revenue Service lacked the authority to override time limitations in the tax code, but exceptions for other groups did exist. The Refund Equality Act attempts to fix the disparity by creating an exemption specifically for same-sex couples to apply for adjustments dating back to the date of marriage.

The Joint Committee on Taxation estimates $67M would be returned to the qualifying couples.

Every good story has a bit of irony, and this one does as well. Edith Windsor and her spouse may not qualify for a tax refund under this new bill. Why? Under Section 2 of the current bill, an amendment to Internal Revenue Code 1986 would stipulate regarding spouses:

“Who were married under state law (as such term is used in Revenue Ruling 2103-17). . . .”

Windsor married in 2007, which could mean six years of amended returns between then and 2013. But the couple married in Canada!

 

Michael Hackman is the Chair of both our Tax, and Trust & Estate Planning Practice Groups.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

Thursday
Dec032015

Tax Planning Before Turning 70: What You Should Know About RMDs

Trusts & Estate Planning

 

 

by Kira S. Masteller

818.907.3244

 

 

Tax payers aged 70 ½ or older this year must take a Required Minimum Distribution, or RMD, from their traditional IRAs (Individual Retirement Arrangements), SEP (Simplified Employee Pension) IRAs, SIMPLE (Savings Incentive Match PLan for Employees) IRAs, or retirement plan accounts. RMD reporting is required for inherited IRAs as well.

Those who do not take distributions in time may be subject to a 50 percent excise tax on excess IRA accumulations.

RMDs: The Devil in the Details

Keep in mind:

1. Defined Contribution Account owners may be able to wait until retirement to file a report. 

2. Those who turned 70 ½ in 2015 must report a RMD before April 1, 2016 – unless they turned that age in the first half of the year. If that’s the case, the first RMD report must be made before December 31st of this year. 

3. First year reporters who wait to report in April will be required to report twice (which could raise tax obligations) because they are required to report an RMD again before December 31st. This is why it’s important to begin tax planning for RMDs at age 69. 

After the first year, IRA owners are required to report annually by year’s end. 

4. Life expectancies of the taxpayer and the taxpayer’s spouse will play a factor. See the IRS’s resources for calculating RMDs for more information, but it essentially comes down to the taxpayer’s account balance the preceding year’s end, divided by an IRS life expectancy factor. 

5. Taxpayers who have forgotten to take RMDs in the past should take all of them as soon as possible, because of the excise tax mentioned above.

Retirees and other tax payers who don’t need their RMDs might consider reinvesting those funds into a Roth IRA, which won’t require withdrawals until after the account owner passes, or a grandchild’s 529 college savings account. And there are other planning tools available to help reduce your taxable estate. Simply speak with your accountant or trusts & estates attorney for more information.

 

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. She may be reached by email: kmasteller@lewitthackman.com or by phone: 818.907.3244.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
Dec052012

The Tax Increases Have Begun

by Lewitt Hackman's Trusts & Estate Planning Practice Group 
December 4, 2012

Tax Attorney EncinoMichael Hackman - Certified Tax Law Specialist Kira S. Masteller - Gift Tax, Trusts & Estate Planning

With the “fiscal cliff” discussions front and center, many people do not realize that certain tax increases are already being implemented, both at the federal and at the state level. 

 

Federal Taxes

 

Earlier this week, the IRS released 159 pages of new tax rules related to the implementation of the 2010 healthcare reform law, sometimes known as “Obamacare”. 

First, there is a 3.8 percent surtax on “investment income” for individuals earning more than $200,000 in modified adjusted gross income, and married couples filing jointly with more than $250,000 of such income (notwithstanding the 159 pages, there are still numerous uncertainties as to what constitutes “investment income”). 

This surtax will be applied to capital gains and dividend income and is the first of its kind applying to capital gains and dividend income.  The IRS offered the example of a single taxpayer who makes $180,000 in wages plus $90,000 in investment income (a modified adjusted gross income of $270,000).  The 3.8 percent tax would apply to $70,000, resulting in a $2,660 surtax. 

In addition, there is a 0.9 percent healthcare tax on wages (i.e., the employee portion of the payroll tax) for such “high-income” individuals.  These rules are effective for the tax year starting January 1, 2013, though the IRS will take public comments and hold hearings in April before making the rules final in the fall.  It is estimated that these tax increases will raise $317.7 billion over 10 years.  We believe that employers must start to withhold once an employee’s wages pass $200,000 each year. 

There are numerous other changes as part of the healthcare law, including several changes in the deductibility of medical expenses.

 

California State Taxes

 

California voters recently passed Proposition 30 by a margin of 55.3 percent to 44.7 percent.  This proposition increases California sales tax to 7.5 percent from 7.25 percent.   

In addition, it will result in increases in state income taxes for “high-income” tax brackets.  These California income tax increases will apply retroactively to January 1, 2012, as follows:

  • 10.3 percent tax rate on taxable income for individuals between $250,000 and $300,000, and for married couples filing jointly between $500,000 and $600,000 (formerly 9.3 percent);

  • 11.3 percent tax rate on taxable income for individuals between $300,000 and $500,000, and for married couples filing jointly between $600,000 and $1,000,000 (formerly 9.3 percent); and

  • 12.3 percent tax rate on taxable income for individuals over $500,000, and for married couples filing jointly over $1,000,000 (in addition, though not part of Proposition 30, there continues to be an additional 1 percent tax assessed for an individual’s taxable income in excess of $1,000,0000, pursuant to the Mental Health Services Act). 

The Proposition 30 tax increases are temporary – the increased sales tax applies for four years and the increased income taxes apply for seven years. It is estimated that these taxes will bring in additional revenues to the state of approximately $6 billion annually (less after 2016-17 as a result of the sunset of the four year sales tax increase period). 

On the bright side, certain proposed deep cuts to education and other government services should not occur as the result of the passage of Proposition 30.

 

Michael Hackman is the Chair of our Trusts and Estate Planning Practice Group, and is a Certified Specialist in Tax Law, designated by the State Bar of California Board of Legal Specialization. Kira S. Masteller is a Gift Tax, Trusts and Estate Planning Attorney. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.
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