Janell A. Israel & Associates

1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817

January 2013 Tax Newsletter

What's New in Taxes:

Health Care Reform Provisions Go Into Effect

Several provisions in the 2010 health care reform legislation go into effect this year. Here are some of the tax provisions that may affect you.

* FSA limits

The amount that can be contributed to a health flexible spending account (FSA) is limited to $2,500 per year, indexed annually for inflation.

* Medical expense deduction

The 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65. Those 65 and older may continue to take an itemized deduction for medical expenses exceeding 7.5% of adjusted gross income through the year 2016.

* Medicare tax increase

The payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. The income threshold levels are not indexed for inflation.

A new 3.8% Medicare tax will be imposed on unearned income for single taxpayers with income over $200,000 and married couples with income over $250,000. Examples of unearned income: interest, dividends, royalties, rental income.

Use Adjusted Tax Numbers In Your 2013 Planning

Each year the IRS adjusts certain tax numbers for inflation and tax law changes. Here are some of the adjusted numbers you'll need for your 2013 tax planning.

* STANDARD MILEAGE RATE for business driving increases to 56.5¢ a mile. Rate for medical and moving mileage increases to 24¢ a mile. Rate for charitable driving remains at 14¢ a mile.

* SOCIAL SECURITY taxable wage limit increases to $113,700. Retirees under full retirement age can earn up to $15,120 without losing benefits.

* KIDDIE TAX threshold increases to $2,000. The tax applies up to age 19 (up to age 24 for full-time students).

* NANNY TAX threshold remains at $1,800.

* HSA CONTRIBUTION limit increases to $3,250 for individuals and to $6,450 for families. An additional $1,000 may be contributed by those 55 or older.

* 401(k) maximum salary deferral increases to $17,500 ($23,000 for 50 and older).

* SIMPLE maximum salary deferral increases to $12,000 ($14,500 for 50 and older).

* IRA contribution limit increases to $5,500 ($6,500 for 50 and older).

* ANNUAL GIFT TAX EXCLUSION increases to $14,000.

Medicare Premiums

In 2013, the basic Medicare Part B premium will rise to $104.90 per month, up $5 a month over the charge for this year. That equates to a 5% increase. This will be the second year in a row that most beneficiaries will see a premium hike.

Upper-income seniors will still pay a significantly larger Part B premium if their modified adjusted gross incomes for 2011 exceeded $170,000 for couples and $85,000 for single people. Modified AGI is AGI plus any tax-exempt interest, EE bond interest that’s used for education and excluded foreign earned income.

And higher-income seniors will also owe a surcharge on Part D premiums for coverage of their prescription drug costs. This table summarizes the impact:

For Marrieds				For Singles
If your 2011 modified AGI is More than But not over		Your 2013 monthly Part B premium will be	Your 2013 monthly Part D surcharge will be	If your 2011 modified AGI is More than But not over		Your 2013 monthly Part B premium will be	Your 2013 monthly Part D surcharge will be
$170,000	$214,000	$146.90	$11.60	$85,000	$107,000	$146.90	$11.60
$214,000	$320,000	$209.80	$29.90	$107,000	$160,000	$209.80	$29.90
$320,000	$428,000	$272.70	$48.30	$160,000	$214,000	$272.70	$48.30
$428,000	—	$335.70	$66.60	$214,000	—	$335.70	$66.60

Marrieds filing separately will be hit hard if they lived together at any time in 2011. Those with modified AGIs over $85,000 and up to $129,000 will pay $272.70 a month for Part B and a $48.30 surcharge for Part D per month. And if their modified AGI topped $129,000, the premium and surcharge will go to $335.70 and $66.60 a month.

What's New in Finances:

Take Action Now to Have a Scam-free 2013

Scam artists are constantly finding new ways to steal your identity and take your money. Here are five steps you can take this year to make their job more difficult.

* Protect your computer. Internet scams are the fastest growing type of fraud. Start your protection by installing software to guard against viruses, spyware, and other malicious bugs. These can be used to steal your personal data or direct you to bogus websites. Remember to update your protection regularly.

* Clean out your wallet or purse. Make sure you're not carrying PIN numbers for debit or credit cards written on a scrap of paper. If you do, anyone stealing your wallet will have open access to your accounts. Sign all your cards. Don't carry your social security card with you.

* Delete all spam e-mails immediately, preferably without opening them. Never click on an attachment or follow a link to a Web page unless you know the sender. List your telephone number on the national "do not call" list. If a telephone solicitor calls, ask to be put on their "do not call" list and then hang up.

* Obtain a free copy of your credit report. Go to www.annualcreditreport.com and order a free copy of your credit report from at least one of the three major agencies. Review it for mistakes, accounts you don't recognize, or strange credit inquiries. If you find something wrong, report it immediately.

* Don't become a phishing victim. "Phishing" refers to bogus e-mails or telephone calls that trick you into disclosing personal or financial information. It may be an e-mail claiming to be from your bank, a retailer, or a government agency. They may ask you to update account information. Or it could be a call from someone claiming to be a bank security officer, who wants to confirm your PIN. Never reveal personal data on the Internet or the phone unless you've initiated the contact and you know who you're dealing with.

By following these and other important steps, you can greatly decrease the risk of becoming a victim of a scam or crime in 2013.

Don't Overlook Tax Planning In a Divorce

Tax rules are daunting at the best of times – and they're more so at the worst of times, such as during a divorce, when you may feel too stressed to face decisions involving your taxes. Yet the choices you make will affect your future, both financially and personally. Here's where to start.

* Filing status

For tax purposes, the timing of your divorce matters. The date of your final decree determines your filing status, which in turn has an impact on what you'll owe.

Will your divorce be final by the last day of your tax year (generally December 31)? If so, you'll file your income tax return as single or head of household. You can also use one of those filing statuses if you were legally separated according to the laws of your state by the end of your tax year.

If your divorce is closed after the end of your tax year, you're considered married for that year. In that case, you'll choose between married filing jointly and married filing separately. Head of household status may be available in certain situations.

Tip: Remember to adjust the income tax withholding statements you have on file with your employer.

* Exemptions

When you prepare your federal income tax return for 2012, you can deduct $3,800 for each qualified child or relative that you claim. In addition, you get the benefit of other credits and deductions related to your dependent, such as the child tax credit.

The general rule: You're the custodial parent if you're the one your child lives with for the majority of the year. You can release your claim to the exemption by filing a form with your return. The release will also allow your former spouse to claim the child tax credit.

Tip: Consider adjusted gross income and your exposure to the alternative minimum tax when discussing who will get dependency exemptions.

* Asset transfers

In general, ex-spouses can make a tax-free transfer of assets within a year of the divorce. "Tax-free" means the initial transfer is considered a gift, so you'll want to make sure you're fully informed about the basis of assets you receive. Why? Because you get the same basis and holding period your ex-spouse had before the transfer. That will be important when you sell the assets later.

Another caveat: Some types of property, such as retirement plans, have extra rules to be aware of. For example, to remain tax-free, a transfer from your traditional IRA to your spouse must be mentioned in your divorce decree, and should take place post-divorce, via a direct transfer to the new account.

Splitting assets in your 401(k) or other qualified retirement plan requires a "qualified domestic relations order," a document you must get from the court.

These are just a few of the taxing aspects of divorce. Contact us for planning and advice specific to your situation.

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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.