May 2013 Letter

The 2012 tax filing season may be a thing of the past, but understanding and adjusting to the changes in store for this year are becoming more important. So what's next? Washington is contemplating more changes; from the introduction of an internet sales tax to a roll back of spending cuts agreed to last year. How will the dust settle? No one is sure. In the meantime, why not review your situation and start taking action to benefit from the rules we now know for 2013.

Ideas to Improve Your Financial Health

No-one likes to be blindsided by financial hardship. Listed here are ten ideas to help ensure your financial health stays healthy.
	Your safety net. Plan to have a minimum savings balance to cover three months of expenses. Ideally this should be six to twelve months. If your reserves are light, start saving now. Even if it is a little amount, it can get you on the right track.
	Budget. At least once a year develop a basic budget. Set goals and try to hit them. If this seems overwhelming, start simple. What is coming in and what goes out eachmonth? Becoming aware is the first step to improving your financial health.
	Spouse as financial partner. If you die, does your significant other know where everything is? Can he/she pay the bills? Does he know where account numbers are? Does your spouse know who you use to help with things? If not, it is time to start talking.
	Review beneficiaries. Once a year review beneficiaries on all accounts. This includes retirement accounts as well as names on wills and estate plans. The legal hassle created without this review can be devastating to your surviving family. This is especially important if you had a recent life event (marriage, divorce, birth, or death).
	Maximize benefits. Make sure you review your retirement plans for maximizing any employer match in your account. Also review your plan's administrative expenses. If they are too high they can cost you 10s of thousands of dollars over your lifetime.
	Disaster plan. If your home burned down or was flooded are your important records easily accessible and protected? If not consider creating a disaster plan, including placing important documents in a safe deposit box.
	Credit report review. With the recent increase in identity fraud, plan to check your credit with the major credit agencies once a year. The agencies are legally required to make their report available to you annually without charge.
	Insurance review. Periodically look at your health, life, home, and liability insurance. With the legal nature of our society you might consider the need for an umbrella policy to cover against potential litigation. But also consider flood insurance and a replacement value homeowner's policy.
	Debt wrestling. Review your use of debt instruments. Understand your net worth (assets minus liabilities). Make progress in reducing your debt load starting with the highest interest obligations first. Is your debt lower than it was last year?
	Plan for fun. It is easy to make a simple financial mistake that can cost you plenty. But while on the path of financial improvement, don't forget to smell the roses. Just do it in a financially healthy manner.

This list is by no means complete, but if you focus on the areas mentioned, your financial life will become more planned and less likely to be struck by an unforeseen surprise.

Is it Coming? The Online Sales Tax

The Marketplace Fairness Act is working its way through Congress and could dramatically impact the collection of sales tax on all internet purchases. If passed, the federal government will empower states to make online merchants collect and remit sales tax. Here is what you need to know. Why now?
	States are begging for more tax revenue. Many states have not recovered from the recession of 2008 and are in dire need to balance their budgets.
	It is already law. Sales taxes are already required by most states on internet purchases. The taxes are simply not being sent in by the people making the purchases. The argument is that an internet sales tax is not a new tax, it is simply requiring small businesses to help their customers comply with state law.
	Big box retailers gripe. Big brick and mortar retailers think online companies have a cost advantage by not collecting sales tax.
	Even Amazon likes it. After years of fighting, it appears even Amazon is willing to accept the tax. Amazon currently collects sales taxes in approximately ˝ of the states already.
	Showrooming and retailer protection.Many customers go into local retailers to see the product they wish to buy, then go online to purchase the item for a lower price, and avoid paying sales tax. This practice has hurt many traditional retailers.

What's in the bill?

If passed in its current form, states would be allowed to require the collection of sales tax for any online sales. To help ease the burden on businesses the states would be required to provide free software to collect the tax. Business' with less than $1 million in online sales would be exempt.

The Arguments Against

	New Hampshire, Montana and Oregon hate it. States that currently have no sales tax do not like other states auditing and taking legal action against their small business community. Nor do they want to create software to comply with the federal law that sends money to other states.
	Small business burden. The major problem for small businesses with online sales taxes is the undue complexity in each state's laws. The current bill does not simplify this process by making one unified online sales tax rate. A look at Minnesota sales tax law illustrates this problem: MN taxes some items but not others...retailers must tax goods sold, but not services. There is no tax on food or clothing. An online retailer would need to know what items it sells should be taxed if the customer is in Minnesota. The Minnesota tax rate varies from county to county. Some Minnesota cities also impose their own sales tax. The result? Every small business needs to keep track of complex sales tax laws in all 50 states.
	Not all states will have the requirement. Online retailers would need to know which states have an internet sales tax collection law and which do not. Some states, like California, already have one in place.

Many have suggested a more manageable approach would be a uniform single online sales tax rate that is collected centrally and then distributed by the Federal government to each state. This removes the burden of compliance complexity from the business community. The likelihood of this approach is currently remote as most states have their own agendas.

Does it Pay to be Noticed?

If you receive a notice from the IRS most of us will see our pulse rate quicken and a cold sweat break out on our foreheads. Here is some advice if an IRS notice finds its way into your mailbox.
	Open it. You would be surprised how many people simply cannot find the courage to open a letter from the IRS. It can be intimidating. Try to remember the IRS sends out millions of these every year.
	Most notices are produced by computer programs. Most IRS notices are driven by a request for clarification. Things like a name mismatch or a missing 1099 or W-2 can be easily corrected.
	Follow the instructions. The letter will tell you what to do and when to do it. Follow these instructions.
	Changes to your return. Often the IRS will make a proposed change to your tax return and will ask you to confirm the change. If you agree with the change you often need to do nothing. If not, you must formalize your disagreement.
	Ask for help. Do not assume you know the answer. Ask for a review of the correspondence as soon as possible.
	Certify your response. Any written response to your IRS notice should be sent by certified mail. If the IRS later says you did not respond, this certification can be used to defend your timely response to their notice.
	Fraud is possible.Remember the IRS does not correspond via email. Do not give personal information to anyone representing themselves as the IRS without independent verification. This is especially important on telephone calls. How do you do this? Independently confirm mailing addresses and initiate phone calls to the IRS through information on their www.irs.gov website.
	Use alternatives. If you cannot seem to get resolution to your notice via mail, consider calling or visiting a local IRS office. But only do so with proper representation.

Annual Retirement Savings Contributions are Up 2013 marks one of the first years in many that the annual contribution limits to most of the common retirement savings plans has increased. If you have not already done so, please review your accounts and make the necessary adjustments to take full advantage of these new, higher, limits. Retirement Program Current Year 2013 Last Year 2012 Change Age 50 or over catch up IRA: Traditional $5,500 $5,000 +$500 add: $1,000 IRA: Roth $5,500 $5,000 +$500 add: $1,000 IRA: Simple $12,000 $11,500 +$500 add: $2,500 401(k), 403(b), 457 plans $17,500 $17,000 +$500 add: $5,500

As always, should you have any questions or concerns regarding your situation please feel free to call.