DOMA Decision and Federal Tax Impact on Same Sex Married Couples

by Richard S. Schwartz CPA. CVA

NOTE: On August 29th,the IRS announced that all legal same-sex marriages will be recognized for federal tax purposes.

In June 2013, the US Supreme Court overturned Section 3 of the Defense of Marriage Act (DOMA), which defined a marriage as a union between a man and a woman for federal purposes.? With the historic June 2013 decision, same sex married couples (SSMC?s) have been granted the same federal rights, privileges, and protections as heterosexual married couples in states where same sex marriages are recognized.? However, Section 2 of DOMA was not overturned ? leaving the decision to allow same sex marriages to be determined at the state level.? Currently, 13 states recognize same sex marriages: CA, CT, DE, IA, MA, MD, ME, MN, NH, NY, RI, VT, and WA, as well as the District of Columbia.? However, please note that this new ruling does not apply to registered domestic partnerships or to civil unions that are recognized under state law.

In addition to numerous benefits such as health insurance, retirement and social security, the new law also extends to income taxes.? ?On August 29, 2013 the IRS announced that all same sex marriages that were legally recognized in a state that allowed same sex marriages will be treated as married for federal tax filing purposes, regardless of the state where the couple currently resides.? For example, if the couple were legally married in a state that allowed same sex marriages but now the couple resides in a state that does not recognize same sex marriages, for federal income tax purposes, the marriage will be recognized.

The new ruling also allows SSMC?s to amend prior years? tax returns allowing the couple to file jointly.? Filing an amended tax return is not required.? SSMC?s would need to consult with their tax preparers to determine on an individual basis if amending past years? tax returns would be beneficial or not.? ?A taxpayer can go back three years to file an amended tax return, opening the door to amend tax years 2010, 2011, and 2012 (as well as 2009 if you had filed an extension for that year).

Generally, married taxpayers would benefit by filing a joint tax return when one spouse earns significantly more income than the other spouse.? Another situation that would prove tax advantageous for a couple to file an amended prior year tax return would be when one taxpayer had his partner included on his employer sponsored pre-tax health insurance plan resulting in his federal wages reported on his W-2 being increased by the financial benefit provided the spouse.? Those incremental wages would now be pre-tax.

However, there are also ?pitfalls? to be aware of when amending the tax return.? For example, if one spouse had claimed the adoption credit when adopting the other spouse?s child, that credit would need to be recaptured and would no longer be allowed if amending to a joint tax return.? Another example would be when spouses own rental properties where the passive activity tax rules could significantly affect prior years? income as well as tax carry forward information when amending to a joint tax return.

Finally, beginning with the 2013 tax year, SSMC?s will no longer be able to file as single or head of household filing status for federal tax purposes.? The result of filing jointly or married filing separate could have a significant adverse federal income tax impact for many SSMC?s due to the ?marriage penalty?.? Therefore, as soon as possible, SSMC?s should project their 2013 tax liability based upon their new federal tax filing status in order to prevent any year end ?surprises?.? Determining their 2013 joint tax liability now as opposed to next winter, will allow SSMC?s to make any necessary adjustments to their federal income tax withholdings and federal estimated tax payments sooner rather than later.

Tips if you Owe Taxes

While most taxpayers get a refund when they file their taxes, some do not.??Here are?some?tips and options from The IRS if you owe federal taxes:

1. Tax bill payments. If you get a bill from the IRS this summer, you should pay it as soon as possible to save money. You can pay by check, money order, cashier?s check or cash. If you cannot pay it all, consider getting a loan to pay the bill in full. The interest rate for a loan may be less than the interest and penalties the IRS must charge by law.

2. Electronic Funds Transfer. It?s easy to pay your tax bill by electronic funds transfer. Just visit and use the Electronic Federal Tax Payment System. You may also use EFTPS to pay your taxes by phone at 800-555-4477.

3. Credit or debit card payments. You can also pay your tax bill with a credit or debit card. Even though the card company may charge an extra fee for a tax payment, the costs of using a credit or debit card may be less than the cost of an IRS payment plan. To pay by credit or debit card, contact one of the processing companies listed at

4. More time to pay. You may qualify for a short-term agreement to pay your taxes. This may apply if you can fully pay your taxes in 120 days or less. You can request it through the Online Payment Agreement application at You may also call the IRS at the number listed on the last notice you received. If you can?t find the notice, call 800-829-1040 for help. There is generally no set-up fee for a short-term agreement.

5. Installment Agreement. If you can?t pay in full at one time and can?t get a loan, you may want to apply for a monthly payment plan. If you owe $50,000 or less, you can apply using the IRS Online Payment Agreement application. It?s quick and easy. If approved, IRS will notify you immediately. You can arrange to make your payments by direct debit. This type of payment plan helps avoid missed payments and may help avoid a tax lien that would damage your credit.

Taxpayers may also apply using IRS Form 9465, Installment Agreement Request. If you owe more than $50,000, you must also complete Form 433F, Collection Information Statement. For approved payment plans the one-time user fee is $105 for standard and payroll deduction agreements. The direct debit agreement fee is $52. The fee is $43 if your income is below a certain level.

6. Offer in Compromise. The IRS Offer-in-Compromise program allows you to settle your tax debt for less than the full amount you owe. An OIC may be an option if you can’t fully pay your taxes through an installment agreement or other payment alternative. The IRS may accept an OIC if the amount offered represents the most IRS can expect to collect within a reasonable time. Use the OIC Pre-Qualifier tool to see if you may be eligible before you apply. The tool will also direct you to other options if an OIC is not right for you.

7. Fresh Start. If you?re struggling to pay your taxes, the IRS Fresh Start initiative may help you. Fresh Start makes it easier for individual and small business taxpayers to pay back taxes and avoid tax liens.

8. Check withholding. You may be able to avoid owing taxes in future years by increasing the taxes your employer withholds from your pay. To do this, file a revised Form W-4, Employee?s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool at can help you fill out a new W-4.

Keep Financial Records Safe in Case of a Disaster

From IRS News:

Hurricanes, tornadoes, floods and other natural disasters are more common in the summer.? We encourage you to take a few simple steps to protect your tax and financial records in case a disaster strikes.

Here are five tips from the IRS to help you protect your important records:

1.?Backup Records Electronically.? Keep an extra set of electronic records in a safe place away from where you store the originals. You can use an external hard drive, CD or DVD to store the most important records. You can take these with you to keep your copies safe. You may want to store items such as bank statements, tax returns and insurance policies.

2.?Document Valuables.? Take pictures or videotape the contents of your home or place of business. These may help you prove the value of your lost items for insurance claims and casualty loss deductions. Publication 584, Casualty, Disaster and Theft Loss Workbook, can help you determine your loss if a disaster strikes.

3.?Update Emergency Plans.? Review your emergency plans every year. You may need to update them if your personal or business situation changes.

4.?Get Copies of Tax Returns or Transcripts.? Visit to get Form 4506, Request for Copy of Tax Return, to replace lost or destroyed tax returns. If you just need information from your return, you can order a transcript online.

5.?Help from the IRS.? The IRS has a Disaster Hotline to help people with tax issues after a disaster. Call the IRS at 1-866-562-5227 to speak with a specialist trained to handle disaster-related tax issues.? Or visit their website at and click on the ?Disaster Relief? link in the lower left corner of the home page.

You can also find help with the IRS videos and podcasts:

IRS YouTube Videos:

IRS Podcasts:

Now’s the time for Mid-Year Projections

Now’s the time to get a Mid-Year Tax Projection to see how you’ll do on April 15 next year.

If you have self-employment income, made a job change during the year, have multiple sources of income, or just want to see where you stand tax-wise, our Mid-Year Tax Projection Service will help!

We’ll calculate a mid-year projection and give you advice on what you can do for the rest of 2013 to reduce your tax burden on April 15 (a nominal fee is charged for this service).

You can download our Tax Projection Worksheet for 2013, complete it, and give us a call at 781.938.0045 to schedule a meeting.



Disability Business Overhead Expense Insurance

By guest author Lawrence B. Keller, CLU, ChFC, CFP?

As the owner of a medical or dental practice, you are the key to its success. Your patients and staff rely on you. If you become disabled, you may be unable to provide the services your patients expect or the leadership that your employees need.

Overhead Expense disability insurance is a cost effective way to ensure that your practice can meet its ongoing expenses during a period of disability. Protecting your practice from financial loss is important whether you eventually return to work or decide to sell your practice. Just as individual disability income insurance can help you pay your living expenses while you recover from a serious injury or illness, Overhead Expense disability insurance can help you to keep your medical practice healthy.

Business Overhead Expense insurance is a cost effective way to ensure that your business can meet its ongoing expenses during a period of disability by reimbursing the owner(s) of a practice up to 100% of the normal ongoing business expenses incurred during a disability, including items such as:

  • Rent
  • Electricity
  • Telephone
  • Heat
  • Water
  • Laundry, janitorial and maintenance services
  • Employee salaries
  • Employee benefits
  • Real estate taxes
  • Property, liability and malpractice insurance
  • Interest on debt
  • Depreciation
  • Rent or lease expense of furniture or equipment
  • Legal and professional services
  • Professional, trade, and association dues
  • Licensing fees
  • Billing and collection fees
  • Other tax-deductible business expenses
  • Salary for your replacement (depending upon insurance carrier)

Typically, monthly benefits up to $50,000 are available with benefit periods up to 30 months. While this may seem to be a substantial amount of coverage, it is not uncommon to find healthcare practices with overhead expenses that far exceed this limit. As a result, special risk insurers, like Lloyd?s of London, are able to supplement the traditional market with monthly benefits in excess of $250,000.

Premium payments for Overhead Expense insurance are tax-deductible as a reasonable and necessary business expense (Rev. Rul 55-264, 1955-1 C.B. 11). As such, benefits received during disability, while taxable upon receipt, are used to pay practice related expenses, which are tax-deductible. The net tax result is a ?wash? so the net tax impact is neutral.


While most doctors and dentists are keenly aware of the need to purchase individual disability insurance coverage, few are aware of the importance of Disability Business Overhead Expense insurance.

Lawrence B. Keller, CLU, ChFC, CFP? is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at (516) 677-6211 or by email to with comments or questions.

Tips for Taxpayers Who Travel for Charity Work

From IRS Tax Tips Newsletter:

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year. Here are five tax tips the IRS wants you to know about travel while serving a charity.

1.?You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. You can also visit and use the Select Check tool to see if the group is qualified.

2.?You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can?t deduct the value of your time or services.

3.?The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.

4.?You can deduct your travel expenses if your work is real and substantial throughout the trip. You can?t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

5.?Deductible travel expenses may include:

  • Air, rail and bus transportation
  • Car expenses
  • Lodging costs
  • The cost of meals
  • Taxi fares or other transportation costs between the airport or station and your hotel

To learn more see Publication 526, Charitable Contributions. The booklet is available at or by calling 800-TAX-FORM (800-829-3676).