Andrew Martin feels strongly that it is critically important for gay and lesbian couples to choose a CPA who is both sensitive to and experienced in handling their needs because the tax and financial issues they face are radically different from those of married heterosexuals.

Martin is the managing partner of Martin & Wall, P.C., a CPA firm founded in 1994, with offices in Washington, D.C. and Chicago, dedicated to helping gay and lesbian couples as well as entrepreneurs navigate through complex tax matters, wealth management, and financial decisions. The firm's three partners each have 15-20 years of professional experience, multiple licenses, and certifications.

Martin's own specialties include developing integrated tax, investment, and financial strategies for gay and lesbian couples plus small business owners, tax preparation, tax minimization for stock option recipients, tax issues for foreign nationals, rental property tax issues, "like kind" exchanges, IRS representation, financial forecasts, accounting system design for small businesses, and forensic accounting. Martin has also served as an expert witness on matters of fraud and economic damage calculations.

"The core of our client base is the small business owner, the professional, and gay and lesbian couples seeking to minimize their taxes and to increase their wealth," says Martin. "They use our firm as a resource to guide them through important financial decisions. Our clients represent a wide cross section of professions and industries that have served their communities for many years. Clients include information technology companies, franchise operators, consulting firms, attorneys, doctors, dentists, real estate agents, construction companies, publishing companies, wholesale and retail merchandise, and bars and restaurants."

Understanding the Lifestyle

"Although many of us have been in committed relationships for many years," says Martin, "the Internal Revenue Service defines gay and lesbian couples as single for tax purposes. The implications of this definition involve complications that require the advice of a competent professional. With the advent of same-sex marriage in Massachusetts, there is now the added potential complexity of being single for federal tax purposes and married for state tax purposes--also dependent upon which states choose to recognize the marriage."

Martin says that it is important to find an attorney who understands the community's legal needs. "The financial and legal systems were not designed with this group in mind. For example, two single people who purchase a house together need to be aware of how to title the house correctly. A wrong decision can lead to devastating tax consequences." Furthermore, Martin points out that unmarried couples are potentially subject to much higher taxes upon the death of a life partner. "Often, however, there is a trade off for unmarried couples between paying lower income taxes throughout their life and paying higher taxes upon death."

Martin says that there are methods to counteract this; however, even the solutions require considerable thought to avoid additional potential tax problems. "These problems, as well as many others, do not exist for the heterosexual couple. We have many heterosexual couples as clients but by comparison their tax situations are far less complicated given the same set of circumstances."

He believes strongly that there can be some financial and legal advantages to such a relationship. "There are advantages and disadvantages to every filing status; it just depends upon the situation." For instance, he notes that if one partner is employed by the other's company (owned by the other partner), the couple gains the ability to legally shift income to the partner with the lowest marginal tax rate. "Additionally, they may be able to claim expenses as deductions, which were previously unavailable. Furthermore, most health insurance plans do not offer domestic partner health insurance premiums. Even if this benefit is offered, the health insurance premiums, for the same sex partner, are considered taxable income to the employee. If a same sex couple has the entrepreneurial spirit and starts their own business, this problem can be avoided by employing both partners and providing employer-paid health insurance." Martin notes that the tax savings from these basic moves can be thousands of dollars per year.

A very basic "move" for an unmarried couple to consider is the shifting of mortgage interest and real estate taxes on jointly titled property. "We are allowed to put the deductions where they will do the most good." Another basic move is the assignment of jointly owned rental property. "In many cases, the unmarried couple can gain the ability to deduct the passive losses on multiple properties and not be constrained by the standard $25,000 passive activity loss limitation that a heterosexual married couple must contend with. Further, in the case of a married couple, the income limit 'phase outs' are the same as if they are single people. So, the combination of income shifting and expense shifting can save considerable amounts in taxes for unmarried couples versus being married filing jointly."

Lacking Basic Rights

Martin says that he has many clients that have been in committed relationships for 20 years or more. "For all practical purposes, they consider themselves 'married.' But the legal system does not afford them the legal protections and tax benefits of a married couple. Therefore, we have to simulate these benefits through legal agreements--such as wills, powers of attorney, joint tenancy of assets--and more often, merger of financial lives by creating a business." Beyond the unlimited marital exemption for the surviving spouse upon death, there are even some additional, yet small items, he cites, as examples, such as certain marital perks for heterosexual couples ranging from co-ownership of frequent flyer miles or de facto country club admittance that does not exist for the gay and lesbian community. "It is as complicated as it is troubling."

Martin believes the end result of having to simulate marriage through a series of contracts, business formation, and sophisticated tax and financial strategies, powers of attorney for medical and other reasons creates "a much higher cost of compliance with the legal and financial system for no good reason. We get 'married' at the conference table, not the altar."

The need to utilize life insurance to offset the loss of marital exemptions for estate tax purposes is a potent example of this. "Assets jointly owned by unmarried couples are counted at 100 percent value instead of 50 percent value for estate valuation purposes, which means gay and lesbian couples pay double the estate tax as married couples. While life insurance can be used to offset the tax burden, the end result is the unmarried couple is being forced to incur an extra expense through their life to compensate for the inequity in the tax code at death."

He also looks at stockpiling property through joint tenancy with the right of survivorship. He says that his experience with the IRS is that the moment he tells them it's a gay couple involved, they tend to shy away and leave it alone simply because they are unsure how to handle the matter. "This always helps when the Service comes calling."

Working Together

"At many CPA firms with multiple partners or multiple offices, a person becomes a client of a particular partner at a particular location instead of a client of the firm as a whole," Martin emphasizes. "We wholeheartedly reject that model since it fosters competition for client billings instead of cooperation for client service." Instead, Martin & Wall works together as a team to provide the highest level of service to its clients. Key to this is the close friendship among the partners. In fact, Martin's life partner of nearly 18 years, Dana Barooshian, is a partner in the firm.

"Personal attention from the firm's partners, a high level of responsiveness, and creative problem solving based on the client's individual needs are the foundations of our approach to client service and building relationships," concludes Martin. "The bedrock of our business philosophy is building long-term relationships with clients who trust us. Trust is not easily earned, especially in the gay and lesbian community, who have been taken advantage of too often. We work very hard at earning and keeping your trust.

Martin & Wall, P.C.
Washington & Chicago
Representing gay and lesbian couples, and small business owners seeking to minimize taxes and increase wealth.
Founded: 1994
Partners: 3
Staff: 7
Offices: 2
Internet site: www.martinwallcpa.com

 

By Stuart Kahan, Executive Editor, CPA Wealth Provider