Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
September 2012 Tax Newsletter
What's New in Taxes:
Capital gains and losses: New year-end strategy
The end of the year is the traditional time for securities investors to "harvest" capital losses for federal income tax purposes. But there's an added wrinkle in 2012: Due to pending tax law changes, you might try to reap more capital gains than losses. Thus, the usual strategy of harvesting losses could be turned upside down.
Here's a recap of the basic rules. The capital gains and capital losses you realize during the year are "netted" under complex rules when you file your tax return. A gain or loss is treated as being long-term if you've held the securities for more than one year. For 2012, net long-term capital gain is taxed at a maximum tax rate of 15% (0% for investors in the regular 10% and 15% tax brackets).
If you're showing a net capital gain on paper as year-end approaches, any capital losses you realize will reduce the amount of the taxable gain or offset it completely. An excess loss can then offset up to $3,000 of highly taxed ordinary income before any remainder is carried over to next year. However, the usual strategy of harvesting losses is complicated this year by three key tax law changes scheduled for 2013.
* The maximum tax rate for net long-term capital gain will increase to 20% (10% for investors in the lower tax brackets).
* Ordinary tax rates are going up. For example, the top rates of 33% and 35% will increase to 36% and 39.6%, respectively.
* A special 3.8% Medicare surtax will apply to the lesser of net investment income for the year or the amount by which modified adjusted gross income (MAGI) exceeds $250,000 ($200,000 for single filers).
Barring any late legislation by Congress, investors may be inclined to harvest capital gains instead of losses at year-end. As a result, you can benefit from the favorable tax rates in effect for 2012. If you've already realized short-term gains in 2012, you might want to realize short-term losses to offset those gains. But don't use short-term losses to offset long-term gains, if you can help it, because long-term gains are taxed at a maximum rate of only 15% in 2012.
Other
considerations may come into play. The best approach is to do what's best for
your situation.
New Business:
IRS eases reporting requirement on health coverage
The “Affordable Care Act of 2010” requires employers to report the cost of coverage under an employer-sponsored group health plan on the employee's 2012 W-2.
However, employers issuing fewer than 250
W-2s will not need to include the cost of health care on W-2s for 2012. For
these employers, the 2012 reporting is optional. And such reporting will not
apply for future calendar years until the IRS publishes guidance giving at
least six months of advance notice of any change in the filing requirement.
What's New in Finances:
Changes coming for flexible spending accounts
Flexible spending accounts (FSAs) are popular with employees because they permit the use of pretax dollars for payment of medical expenses and dependent care costs.
If you use an FSA, be aware that changes are scheduled beginning next year. As part of the health care reform law passed in 2010, there will be a dollar limit on the amount that can be set aside for medical expenses. Effective for plan years starting in 2013, the maximum set-aside for medical expenses will be $2,500.
The limit on what can be set aside for dependent care costs will not change; it remains at $5,000.
Keep an eye on any upcoming legislation that may change these rules again.
Have you protected your family?
Would your family be financially secure if tragedy struck? Before you answer, consider the following areas.
* Insurance. Do you carry the right kinds and amounts of insurance, including life, disability, and property? Life insurance coverage can typically run from five to seven times your annual earnings. Disability insurance should pay 60-70% of your current income if you become disabled. Auto and homeowner insurance are needed to protect you from property loss and personal liability, but if you have substantial assets, you should also consider an umbrella liability policy.
* Estate planning. There are basic steps that you should take to keep your estate plan current. Make a complete and accurate inventory of your assets and their current value. Include the form of ownership of each asset, and find out if any changes should be made to reduce future estate taxes. Be sure you have a current will. Consider using a durable power of attorney to designate someone to make financial and health care decisions for you if you become incapacitated.
* Emergency cash reserve. Do you have an emergency fund of three to six months of your salary to support your family during a financial setback? If your emergency fund is not adequate to handle a financial crisis, you may need to tap some other source, such as a home equity loan, a margin loan against your stocks, or a loan against the cash value of your life insurance.
* Recordkeeping. Good records will be helpful if the unexpected happens. Be sure your financial documents and account statements are kept in secure locations and that your family knows where to find them.
Take a break
Giving money and power to government is like giving whiskey and car keys to teenage boys.” - P. J. O'Rourke
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All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted & Christensen, Janell Israel & Associates and NPC are separate and unrelated companies.
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Please visit www.janellisrael.com for up-to-date financial information & www.postoplanning.com for information regarding long term care insurance.
Rep is not an attorney. Rep can help review the documents and recommend a local attorney that specializes in Estate Planning. Estate planning can involve a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing any strategy.