December 2013 Letter

With the outcome of Congressional action as uncertain as ever, what can be done to manage your own affairs as the 2013 tax year winds down? Besides the annual list of things to consider before December 31st, included in this month's letter are planning considerations for those in Health FSA programs and those who wish to plan for their retirement contributions in 2014. Finally, there is a general interest article about the dangers of free Wi-Fi hot spots and some ideas to keep your information safe. As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Understand the New Health FSA Limits Millions of Americans take advantage of their employer's cafeteria plan that allows setting aside pre-tax dollars to be used to pay for qualified health care expenses. The problem with these plans has always been that if you do not use the funds in the account by the end of the year they are forfeited. Some employers have established an allowable "grace period rule" that gives an additional two months and 15 days to use the funds before they are forfeited. New rules The maximum annual amount that can be set-aside in Health FSA's is now set at $2,500 (indexed to inflation after 2012). Old rules allowed this account level to be set by employers offering the benefit (usually $5,000). By reducing funds available for this benefit, the government is hoping it will help pay for the new health care law. With this law change, the IRS agreed to reconsider the long-standing "use it or lose it" rules within FSA's. Effective in 2013, employers can opt to change their Health FSA plans to allow up to $500 in unused funds to be carried over into the following year. If an employer opts to do this, they need to forgo any allowable grace period rules currently within their FSA plan. What you need to know Don't assume you can carry over $500. With all the press around this rule change, many run the risk of assuming you don't have to spend all your Health FSA funds by the end of the year. Remember, your employer must first make the rule change in their FSA plan before you can carry over unspent funds. Look for a notice. Ask your employer's human resource department what the company's plan is with the new rule. You will need to plan for next year's withholding based on their answer. Contributions and spending must match. Just because you carry over $500 into next year, do not assume you can ask for expense reimbursements over the $2,500 limit during any one year. You cannot. So if you carry over funds, you may need to reduce your contribution into your FSA the next year. A Health Savings Account (HSA) is usually a better option. Don't confuse the Health FSA with the HSA benefit. If you are in a qualified high deductible health insurance plan, you may also be an active participant in an HSA. This pre-tax savings account can be used to pay for qualified medical expenses AND unused funds can be carried over into future years. As long as the funds are used for qualified expenses, there is no tax obligation. This type of savings account is usually preferential over the Health Care FSA option. Sound confusing? It can be. Until you receive definitive word your employer is changing their plan, it is best to use up your FSA funds prior to the end of your plan year.

Plan Your 2014 Retirement Contributions As the end of the year rolls around, if you have not already done so, now is the time to plan for contributions into your retirement accounts in 2014. Unlike changes from 2012, most of the annual limits are unchanged in 2014. Retirement Program 2014 2013 Change Age 50 or over catch up IRA: Traditional $5,500 $5,500 none add: $1,000 IRA: Roth $5,500 $5,500 none add: $1,000 IRA: Simple $12,000 $12,000 none add: $2,500 401(k), 403(b), 457 plans $17,500 $17,500 none add: $5,500 Don't forget to account for any matching programs offered by your employer as you determine your various funding levels.

FREE Wi-Fi Hotspots = Lurking Danger In an effort to seem customer friendly, many coffee shops, hotels and other retailers advertise free internet access for their customers. This free access could be your undoing as hackers use these places to steal bank passwords, credit card information and more. Here is what is happening now. The Thieving Techniques Man in the Middle (MITM). In this scenario the hacker places his device between you and the Wi-Fi network. Each of your keystrokes is downloaded, your communication is tracked, and often changed. The hacker could then take your bank account information, drain your balances and be on their way before you were aware your money has been stolen. The Rogue Wi-Fi. This technique is a lot like fishing. The hackers enter a place that you think would have free Wi-Fi. They set up a Wi-Fi network with an appropriate name such as Free Wi-Fi. As unsuspecting victims log into the fake connection their data and computers become compromised. The Packet Stealers. The would be thieves sit at a table near you and use software to steal the information packets you are sending through the Wi-Fi network. In this case, they don't even need passwords as their device is simply reading what you are sending. Later the stolen data can be read and the sensitive information can be pulled from the stolen packets. What They Steal Banking information   E-mail Credit Card details   Social Media Access On-line Shopping Accounts   Your identity What Steps to Take Avoid using Free Wi-Fi if at all possible. A better alternative is to use a VPN (Virtual Private Network) instead of a public network. However, if you do find the need to use this free service; Only use Free Wi-Fi that require a password from the proprietor for access. Double check the Wi-Fi name with someone who is clearly an employee Never enter your passwords when using someone else's Wi-Fi Turn off your computer's file sharing services Make sure your anti-virus and firewall software are installed and up to date Make sure sites you visit start with "https" While no one can ever ensure your security, it is almost always best to transact sensitive transactions over a trusted closed network.

Using Multi-factor Verification for Added Security As data thieves develop more clever ways to steal your identity, what is being done to enhance security? The current trend is to add multiple ways to verify that you are who you say you are. This security feature, known as multi-factor verification, is being deployed in many ways. Here are some common examples: Requiring a PIN and a valid ATM card to withdraw cash at an ATM Using "Captcha" to verify on-line requests. Captcha requires you to enter a code off an image (versus a readable font) making it nearly impossible to capture via a computer program. Using a secret image that you assign to your account that must be verified prior to logging into a service. Using a cell phone call to give you a second or third password to log into a bank account. Using pass code devices that change every few minutes to provide a rotating second or third password. Adding secret questions that only you know the answer to in order to access your account. Multi-factor verification is quickly replacing the simple login id and password as a form of online security. Look for these features when choosing an online retailer or online bank. These added steps could just be the needed barrier to protect your identity and banking information.

It's That Time Again: Year-end Tax Moves While 2013 will be full of surprises as new tax laws are felt for the first time, there are still opportunities to reduce your tax obligation now and into next year. Here are some ideas worth looking at. 1. Make effective use of capital gains and losses. Remember short-term capital gains (assets held less than one year) have a maximum tax rate of 39.6% while the maximum long-term capital gain tax rate moves to 20%. Plus there is a potential bonus Medicare tax of 3.8% if your income exceeds $200,000 single and $250,000 married. Action to take: Review your portfolio and consider the appropriateness of taking long-term gains now versus holding the investment. Net capital losses against short-term capital gains if possible. Also remember you can net up to $3,000 in excess capital losses against ordinary income. Consider maximizing your child's unearned income potential prior to the impact of the "kiddie tax" (usually up to $2,000 of unearned income can be taxed at your child's rate). 2. Last minute charitable donations. Now is the time to finalize your charitable donations. Remember you must always have a receipt (cash donations are no longer deductible without one) and only donate non-cash items in good or better condition. Donations of $250 or more also require an acknowledgement from the charitable organization. Action to take: Make any last minute donations and collect all applicable receipts. Consider donating appreciated stock to gain additional tax benefits. If you are considering this alternative, it is always best to seek qualified advice prior to making this donation. 3. Fund your retirement accounts. Remember you can still make donations to qualified retirement accounts. Some accounts, like Traditional IRAs and Roth IRAs allow making contributions through April 15th as long as you qualify. Action to take: If possible, fund your accounts up to the maximum allowable. Don't forget to take advantage of the catch-up provisions if you are age 50 or over. Consider making contributions this year versus next to minimize your taxable income. 4. Run through other year-end checklist items. Action to take: Take Required Minimum Distribution from retirement accounts if you are over the age of 70½. Rebalance your investment portfolios as necessary Review any medical and dependent care spending accounts to ensure you do not lose any unspent funds Make contributions to your retirement savings accounts, especially if you are self-employed Consider last minute retirement account conversions, if appropriate Consider donating appreciated stock versus writing a check to a favorite charity Estimate your tax liability and make any required estimated tax payments Make any final gift payments while being aware of the annual gift giving limits Start collecting and organizing your tax records As a final note, please consider that the unsettled atmosphere in Congress is sure to result in additional tax changes in 2014. So stay alert to those that may impact you.

Should you have any questions or concerns regarding your situation please feel free to call or email.