November 2013 Letter

As the year winds down, will you be ready for the application of all the new tax laws incorporated into 2013? Please take a moment to review your situation while there is still time to act prior to year-end. As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Tax Change is Coming While a distant memory, in January of 2013 Congress passed sweeping tax legislation. Many of these tax law changes will now be felt as you file this year's tax return. Here are five worth noting. Self-employed FICA. Wage earners have already felt the impact of the social security tax rate reset to the traditional 6.2% (temporary rate in 2012: 4.2%). However, self-employed workers may feel this impact when filing their annual tax return. action: If receiving self-employed income, review your quarterly filings to ensure you have accounted for this incremental tax hike. Higher Taxes. If your income is above $200,000 single or $250,000 married filing jointly, your taxes will be going up. In some cases it may be up dramatically. Why? Your tax return may be subject to the following increases; a new 39.6% tax rate, itemized deduction phase-out, personal exemption phase-out, increase in long-term capital gains taxes, and more. action: Conduct an income tax forecast to review the potential impact on your situation. This is especially true for small business owners in sole proprietorships, Sub Chapter S Corporations, and partnerships as your business profits will be taxed on your individual tax return. Medicare Surtax. To help pay for the health care initiatives, 2013 marks the first year of new Medicare surtaxes for those whose incomes surpass $200,000 single or $250,000 joint. The extra tax may have been applied to your paycheck, but because of the marriage penalty in this part of the code, you may be subject to the additional tax when your income is combined with your spouse's income at tax filing time. action: Conduct a 2013 tax forecast. This is especially important for married couples whose individual incomes do not pass the threshold, but when combined with a spouse do. Dividends and Long-term Capital Gains. While qualified dividends will not be taxed as ordinary income, the maximum tax rate goes up 33% (from 15 to 20%). The maximum tax rate on qualified capital gains also goes from 15 to 20%. action: Year-end planning is now more important to determine whether to sell investments. Try to offset gains with losses wherever possible. Medical Expense Threshold Moves to 10%. For those under the age of 65, the medical expense threshold is now 10% of your Adjusted Gross Income (AGI). You may only deduct qualified medical expenses that exceed this percentage of your AGI. The threshold remains 7.5% if you are 65 years old or older. action: Avoid the tendency to stop tracking medical expenses because you think you will never hit the threshold. Remember it often only takes one major medical emergency to make all other medical, dental, and vision care expenses deductible. While the impact of these changes will not be felt until you file your 2013 tax return, it may make sense to review your situation and be prepared for these upcoming changes.

2013 Filing Status Change for Married Same-sex Couples The U.S. Treasury Department and the IRS issued new regulations as a direct result of the recent Supreme Court ruling regarding same-sex couples. Under the ruling any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, or a U.S. territory that recognizes same-sex marriage will be treated as married for all federal tax purposes. This includes: filing status personal deductions dependency exemptions standard deductions employee benefits tax credits retirement plans and contributions More importantly, this ruling applies regardless of where the same-sex couple currently lives. In other words, if the same-sex couple is legally married in one state, but then moves to another state that does not recognize the marriage, they are still married for Federal Income Tax purposes. Things to note Beginning in 2013, same-sex couples within this ruling must file either married filing jointly or married filing separately. You may no longer file as single taxpayers. You may choose to, but are not required to, file amended tax returns as being married for any prior tax years that are still open under the statute of limitations. This usually means three tax years (2010, 2011, and 2012). This ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships. If you paid for same-sex health insurance coverage from an employer in after-tax dollars you may be able to shift these premiums into pre-tax dollars. State laws are more complex and are currently evolving so try to keep informed of any new developments on this front. More information will be forthcoming on this subject from the IRS and other government agencies.

Avoid These Common Financial Mistakes Throughout life there are many ways to achieve financial success. Some of that success can be achieved by avoiding these common financial mistakes. Under-insuring your property. Often policy owners hold an insurance policy for 10 years or more and never conduct a review to ensure their coverage is still adequate. This is made more complicated each year as insurance companies change the details of coverage within legal documents. Your best defense is to review homeowner, life, and auto insurance with your agent one month prior to your renewal dates. Paying too much interest. If you carry a balance on a credit card you are probably paying some of the highest interest rates in the country. Try to get in the habit of paying enough to cover your current monthly purchases, PLUS the minimum monthly payment, PLUS a little extra. You'd be surprised how much money you can save in credit card interest expense. A costly divorce. A divorce that goes to trial can easily cost thousands of dollars. Using a lower cost mediation option or settling amicably can be a financially wiser way to go. During this emotional time, financial analysis often takes a back seat. Conducting a tax review of the proposed divorce settlement prior to signing could also save you thousands. Unhealthy living costs. Bad health habits can not only hamper and shorten your life, but they can also cost you plenty in the form of higher life-insurance premiums and higher out-of-pocket medical expense. This can be especially expensive with higher insurance policy deductibles and the new 10% medical expense itemized deduction threshold. Consider slight health changes now to pay you dividends in the future. Insufficient emergency savings. If you lost your job or became unable to work, how many months of bills could you pay? Often one major accident is all that is between you and financial hardship. Try to accumulate between six months and one year of financial resources to keep on hand in case this happens to you. Review and consider appropriate short-term and long-term disability insurance. Purchasing with credit. Consider saving enough money to purchase bigger items versus buying on credit. Do you remember saving money as a child to buy a bike or a favorite toy? For some reason, we have now decided we should buy it first and then pay the bill. Why not return to the old way of purchasing? It might just keep you out of a financial hole. Protecting against fraud. With advances in technology have come more devious ways to steal your identity. This includes theft of tax information, social security numbers and credit cards. Conduct a regular review of your online profile and credit reports to identify suspicious activity before it gets out of hand. While it is hard to account for every possible financial pothole in the drive-through of life, by paying attention to the obvious ones, the risk of a large financial surprise can be reduced.

State Business Tax Burdens Announced Where does your state rank? The tax climate for businesses varies dramatically depending on the state in which the business resides. State business environments are constantly shifting as some states readily enact changes made at the federal level, while others do not. Each year the non-profit Tax Foundation organization announces a ranking of tax burdens for businesses. The results of their 2014 ranking are noted here. Some Observations The 10 best states in this year's Index are: The 10 worst business tax burden states are: Wyoming South Dakota Nevada Alaska Florida Washington Montana New Hampshire Utah Indiana Maryland Connecticut Wisconsin North Carolina Vermont Rhode Island Minnesota California New Jersey New York Most of the above states are favorable for businesses because they lack one of the common tax revenue types. Some states lack corporate taxes while others have no sales tax or individual income taxes. Indiana is unique in that is has all the major tax classifications but they are just lower rates than most other states. The common themes within these non-friendly business states are high tax rates with complex tax code. Minnesota stands out here as recently enacted tax changes will impact the cost of doing business within the confines of this state. Want to learn more? The full study is available at www.taxfoundation.org

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

October 2013 Letter

While the temperatures start to cool off from the highs of the summer, the heat will remain high as elected officials put the finishing touches on new legislation. Included this month are a few of the preliminary tax figures for 2014 that are based on the Consumer Price Index. There are also articles discussing expiring tax laws, health care, and unwanted cell phone charges. As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Preview of Key 2014 Tax Figures While official numbers for 2014 are not yet released by the Internal Revenue Service (IRS), many figures are based on formulas set within the Internal Revenue Code (IRC) and use the Consumer Price Index (CPI) published by the Department of Labor. They are noted here for your planning purposes: Tax Brackets: While the actual income brackets for tax rates are not set for 2014, the rate of inflation that impacts the income levels for each tax rate is anticipated to raise the income brackets by approximately 1.7-1.8%. Please recall that beginning in 2013 there is a new 39.6% income tax rate in addition to a new Medicare surtax. Personal Exemption: $3,950 in 2014 ($3,900 in 2013) Standard Deductions: Tax Year 2014 2013 Single $6,200 $6,100 Head of Household 9,100 8,950 Married filing Joint 12,400 12,200 Married filing separately 6,200 6,100 Dependents 1,000 1000 65 or blind: married Add $1,200 Add $1,200 single Add $1,550 Add $1,500 Other Key figures: Tax Year 2014 2013 Estate Gift tax exclusion $5.34 million $5.25 million Annual Gift tax exclusion $14,000 $14,000 Roth and Traditional IRA Contribution limit 5,500 5,500 Caution: Remember, these are early figures using the recently announced Consumer Price Index. Official numbers are released by the IRS later this year.

Use Them or Lose Them These tax benefits are gone after 2013 With the massive tax changes made at the beginning of 2013, it is hard to believe that many tax laws are still set to expire at the end of the year unless Congress acts. As the year winds down, now is a good time to review some of the key expiring tax provisions and take action if you wish to benefit from them. Direct charitable contributions from your retirement account. If you are age 70½ or older you can make a direct contribution from your tax-deferred retirement account directly to a qualified charitable organization. Benefit: If handled correctly, this pre-tax donation does not have to be reported as income on your tax return. Federal tax credit for energy-saving home improvements. This credit for qualified energy-saving home improvements expires in 2013. Benefit: $500 credit (this is a lifetime credit, not annual) for energy saving purchases. The limit is $200 for windows and skylights. Optional itemized deduction of sales tax in lieu of state income taxes. In low or no income tax states, you may use a sales tax itemized deduction instead of a state income tax deduction. Benefit: If you made major purchases or live in a state with no/low income taxes your itemized deductions could be much higher. Itemized deduction of qualified mortgage insurance premiums. Through 2013 you can continue to deduct your qualified mortgage insurance premiums as an itemized deduction. Benefit: A meaningful increase in your itemized deductions. Qualified higher-education tuition and expense deduction. You can offset the tuition and expense of qualified education using the tuition and fees deduction through 2013. Benefit: Up to a $4,000 income deduction. Planning is required as this deduction may not be used in conjunction with many other educational tax benefits. Numerous small business tax incentives. Many small business tax credits and accelerated depreciation incentives are also scheduled to expire after 2013. These range from bonus depreciation to the expiration of the research and development credit. If your business anticipates using any credits this year, it is best to review your situation.

The New Cramming This sneaky fraud could be costing you The art of adding unapproved, deceptive or misleading services to your phone bill is commonly known as cramming. Historically these charges could be seen within your traditional telephone bill. With the shift from traditional land-lines to cell phones, a new form of cramming is making its presence felt. Here are some suggestions to help keep you from becoming a victim of this practice: Check your bill. Check your cell-phone bill every month and identify all items on your bill. Call your provider to get an explanation for anything that appears unclear. Look for key words that may be masking the unapproved charges. Words like: Minimum charge Service fee Other fees Connection fees Or any non-phone related terms like internet or web Question changes. Your phone bill should be predictable. If you see the bill increase from one month to the next, consider it a warning sign. While the change may not be fraudulent billing, the review could point to a need to change your phone agreement or phone habits. Know the culprits. Companies that are commonly adding a monthly charge to cell phones include; gaming companies, sports applications, online entertainment, security services, credit monitoring, wi-fi connection services, and financial services. Guard your phone number distribution. To access your cell phone bill the thieves need your phone number. If you start receiving a number of unwanted calls, it can be a clue that your billing might be compromised in the future. The problem of cramming has found a new home on cell phone bills in part because many users no longer see a paper statement and are set up for automatic bill payment. If either of these applies to you, it makes a monthly review of your billing statement that much more important. If you think you have been a victim of cramming visit the Federal Communications Commission, www.fcc.gov, to learn more and to register a complaint.

Beyond the Noise of Health Care Initiatives What is happening in October? Tax provisions for individuals and families impacted by the Affordable Care Act (also known an Obamacare) will be upon us in 2014. We are seeing the approach of Obamacare in many forms; by Congress members filibustering, through nightly news reports, constant advertisements, and announcements of businesses migrating away from offering health care for some of their employee groups. How does someone make sense out of all this? What is happening now From October 2013 thru March 2014, the open enrollment phase to obtain health insurance through the Health Insurance Marketplace begins. This Insurance Marketplace is a legal requirement for each state to publish health insurance options and related costs to all residents in their respective state. So please be prepared to be inundated with commercials from each state promoting their new Health Insurance Marketplace and the need for you to review your health coverage. Remember, unless something changes, those who do not have health insurance in 2014 could face additional federal tax in 2014. What you need to know Employer provided insurance. If you currently have health insurance through your employer, the current media storm will, in all likelihood, not apply to you. Sole-proprietors. If you are a sole-proprietor you may wish to review your current insurance coverage with the policies available in the Health Insurance Marketplace. Currently without health insurance. If you do not have health insurance, pay attention. Not only will the Marketplace be a good resource to shop for a health insurance policy, your income may also qualify you for a federal Premium Tax Credit to lower your health insurance cost. If you wish to learn more and determine the best course of action for you and your family visit www.healthcare.gov.

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