Briefly Noted

    So Taxes Don’t Us Part: Tax Planning for Newlyweds

    Marriage brings many joys and a few unexpected challenges, such as filing your taxes together. By starting an income tax to-do list well in advance of tax season, filing your first return as husband and wife will go more smoothly. Here are several items the Pennsylvania Institute of Certified Public Accountants suggests newlyweds do to prepare:

    • Update Records: A woman who takes her husband’s surname upon marriage should notify the Social Security Administration ( and her employer of the change. When your marriage involves a move, you should notify the IRS ( Newlyweds should also submit new W-4 forms with their employers so paycheck withholding reflects their new marital status.
    • Filing Status: It doesn’t matter if you were married on January 1 or December 31, you must file as a married taxpayer. You need to consider whether filing jointly or separately is better for your personal financial situation. Generally filing a joint return results in the lowest tax bill, but keep in mind that both spouses are liable for everything on the return. Filing separately may be a better choice if one spouse has high medical expenses or miscellaneous itemized deductions. However, keep in mind that some tax credits and deductions are reduced or eliminated for married couples filing separately. Figuring your taxes both ways is the best method to determine which filing status results in the lowest tax bill.
    • Tax Brackets: If you’re married and plan to file jointly, it’s possible that you will be in a higher tax bracket based on the combined income of you and your spouse. For a married couple filing jointly in 2006, the rate on taxable income between $61,300 and $123,700 is 25%.
    • IRA Deductions: A newly married taxpayer who was able to deduct IRA contributions as a single filer may find that he or she no longer qualifies. If your new spouse is covered by a retirement plan at work, you may be entitled to only a partial deduction or no deduction at all.

       Will the Real Fiduciary Please Stand Up?
    Fiduciaries are investment advisers who operate under a legal obligation to provide only suitable investment advice to their clients. Under the federal Investment Advisers Act, this duty “generally requires an investment adviser to determine that the investment advice it gives to a client is suitable for the client, taking into consideration the client’s financial situation, investment experience, and investment objectives.”

    How do you know if you are getting financial advice from a real fiduciary? The following five steps are recommended by the Zero Alpha Group and its members:

    1) Ask the financial professional outright if he or she is a fiduciary. Don’t assume … ask questions! There is so much confusion now among investors about the term “investment adviser” (and vaguer titles such as “investment consultant” and “financial adviser”) that you very well may think you are dealing with a fiduciary when you are not.

    2) Look for a “clean” ADV report. Under the Investment Advisers Act, registered investment advisers regulated by the SEC are required to deliver a written disclosure statement detailing the adviser’s business practices, education and business background. Read this document carefully. Look at how the adviser is paid, any commission relationships and other indications of conflicts of interest that could put you in second place.

    3) Beware the tell-tale disclosure of a commissioned financial professional. Even if you don’t normally read marketing materials, you should look at the ads and brochures of your current or prospective financial professional. New SEC rules require stockbrokers and other financial professionals who are not considered true fiduciaries to make the disclosure: “Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.” If you see this in the fine print of ads and brochures, you know that—by definition—you are NOT dealing with a fiduciary!

    4) Test willingness to seek out a “second opinion.” A fiduciary may make a strong case for you to use his or her services but will understand if you want another perspective. Keep in mind that a non-fiduciary who fears losing a commission has a built-in incentive to pressure you into investments that may conflict with your best interests.

    5) Expect a high level of personal handling. A salesperson who wants a sale may only be in touch with you again when he or she can generate more commission income. By contrast, a fiduciary will give you a high degree of customized information and data. A fiduciary also will regularly update your retirement plan to reflect any changing circumstances.

    Source: The Zero Alpha Group, an international network of independent investment advisory firms;