Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
April 2013 Tax Newsletter
What's New in Taxes:
Watch Out For Identity Theft, Says the IRS
The IRS is making the prevention of identity theft a top priority this year.
Here's what identity thieves have been doing: They steal a taxpayer's personal information and use it to file a tax return claiming a refund under the taxpayer's name. Then when the taxpayer actually files a return, the IRS won't accept it and notifies the taxpayer that a return under his name and ID number has already been filed.
The IRS recommends that taxpayers do the following in order to avoid becoming an identity theft victim:
* Guard your personal information. Identity thieves can get your information by stealing your wallet or purse, going through your trash, or posing as someone who needs your information for a legitimate reason.
* Watch out for IRS impersonators. Don't fall for phone calls, faxes, e-mails, or other contacts made by people claiming to be from the IRS. Don't respond to the message. Don't open any attachments in an e-mail or click on any links. Do not enter your personal information.
* The IRS recommends that you enter "phishing" in the search box at the top of its website (www.irs.gov) to get more information on avoiding tax scams. E-mail suspected scams to email@example.com.
* Protect information on your computer. Protect your tax information with a password, and once you're finished with your tax data, take it off your hard drive.
Start your 2013 Tax Planning With an Estimate of Your Income
A new tax rate of 39.6% when your taxable income exceeds $400,000 ($450,000 when you're married filing jointly) is just one reason to create an income projection for 2013.
Another reason: Additional rate changes take effect this year. For example, the maximum long-term capital gain rate increased to 20% when your income puts you in the highest ordinary income tax bracket. In addition, a 3.8% surtax may apply to net investment income - a term that includes interest, dividends, and capital gains - when your modified adjusted gross income (AGI) exceeds $250,000 ($200,000 if you're single).
Sorting inflows into various categories such as wages, investments, retirement plan distributions, passive income, and active business income gives you a clearer picture of what tax rules will apply.
For instance, this year you'll pay an additional 0.9% Medicare tax on wages and self-employment income when the combined total of those items exceeds $250,000 on a joint return ($200,000 when you're filing as single).
This tax is separate from, and based on a different type of income than the 3.8% net investment income tax. Depending on the sources of your income, you may be subject to both taxes.
* Planning suggestion 1: Investigate pre-tax fringe benefit options. The 0.9% additional tax is assessed on wages subject to Medicare tax. Health insurance premiums paid under your employer's cafeteria plan are exempt from Medicare tax, as are contributions made by your employer to qualified retirement plans.
* Planning suggestion 2: Consider switching taxable investments - especially those with a built-in loss - to municipal bonds. Tax-exempt interest is not considered net investment income when calculating the 3.8% tax*.
* Planning suggestion 3: Place income-generating investments in retirement accounts. Future withdrawals can increase your adjusted gross income, but are not themselves subject to the net investment income tax.
* Planning suggestion 4: Make tax-free distributions from your traditional IRA to qualified charities when you're over age 70½. This provision was extended through the end of 2013.
* Planning suggestion 5: Increase the amount of time you actively participate in rental real estate activities, and evaluate the effect of grouping your properties in order to combine the time spent managing them.
* Planning suggestion 6: Evaluate the legal form of your business. Flow-through income from an S corporation in which you actively participate is not generally subject to either of the new taxes. Also, depending on your personal tax rate, you may want to take another look at converting to C corporation status.
What's New in Finances:
"Full House" Is the New Home Trend
Surveys are showing that having more than one generation living under the same roof is becoming increasingly common. And that trend may be affecting home design.
A third of homeowners report that they expect to have grown children or aging parents move in with them at some point. About 15% say an adult child has already moved back home with them.
The multi-generational housing trend is higher than it has been since the 1950s. A Pew research study reports that almost 22% of young adults were living at home in 2010 compared with 16% in 2000.
Builders are responding to this trend with home designs focused on providing usable space for the different ages of the home's occupants. Out are large, fancy living and dining rooms that seldom get used. In are additional bedrooms for the additional home occupants and family-oriented spaces that can be utilized by children, parents, and grandparents.
Watch Out For Job Scams On The Internet
In the current U.S. employment environment, many job seekers are feeling desperate - a desperation that provides a golden opportunity for crooks. In the past, fraudsters who specialized in job scams ran ads in newspapers or posted fake employment listings at local grocery stores. Although rip-off artists continue to use such venues, sophisticated criminals now employ a far more efficient tool to nab unsuspecting victims: the Internet.
For example, a bogus advertisement - touting jobs that require no experience and no education - may be posted on a legitimate website using a professional-looking logo and slick testimonials. Or job seekers may be required to pay an enrollment or membership fee to get information that's freely available elsewhere. They may be offered a "job" forwarding money from one bank account to another, often in Europe or China. If the money comes from stolen credit cards, anyone who transfers the funds - even unknowingly - may face criminal charges and end up in jail! One company duped job seekers by offering to provide study materials for a civil service examination that didn't exist. Others were offered jobs as movie actors or newspaper reporters, without regard to experience, training, or appearance.
Fraudsters perpetrate employment scams for several reasons. They may want to collect personal information to steal your identity. They may seek direct access to your bank or credit card accounts to buy stuff with your money. They may even try to use you as a pawn in an illegal activity, such as receiving and reshipping stolen property.
How can you avoid these types of scams?
* Don't pay fees for referrals to government jobs.
* Don't pay upfront fees to receive information.
* Never accept a "job" that consists of simply transferring money to someone else's account (known as a "payment forwarding" scam).
* Don't provide personal information, such as personal bank account numbers or social security numbers, until you're confident that your employer is legitimate.
If you think you've been scammed, take these steps:
* Close all bank accounts and e-mail addresses associated with the fraud.
* Check your credit reports for unusual activity.
* Report the company name and job listing to the website where the scam was posted.
* If you think you've been a victim of a "payment forwarding" scam, file a police report.
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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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.
* Municipal Bonds are subject to interest rate, inflation, credit and default risks. Interest income generated by municipal bonds is generally expected to be free from federal income taxes and, if the bonds are held by an investor resident in the state of insurance, state and local taxes. Such interest income may be subject to federal and/or state alternative minimum taxes. Investing in municipal bonds for the purpose of generating tax-exempt income may not be appropriate for investors in all tax brackets.