Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
July 2013 Tax Newsletter
What's New in Taxes:
Don't Fall for Bogus IRS E-Mails
Crooks wanting to steal your identity are using bogus e-mails and websites designed to look like genuine IRS communications. You might expect the April 15 filing deadline to mark the end of these scams, but they, in fact, are expected to continue for months.
An example of these bogus e-mails: You receive a message confirming IRS receipt of your tax return, but the IRS needs more information to process your return. The e-mail looks official and completely legitimate. But it isn't. The IRS does NOT contact taxpayers asking for personal and financial information. These e-mails should be deleted immediately. Fake IRS websites are also created by scammers to lure victims into filling out forms providing information that results in identity theft.
Recordkeeping: How To Get All That Paper Under Control
It's spring cleaning time, and that includes your tax paperwork. While it can get a bit confusing, there are some general guidelines that you can follow.
* Income tax returns. These should be kept indefinitely. You would be amazed how many times the IRS will "lose" a tax return, and this is your only way to prove original filing. You should also keep the various back-up documents associated with the return, such as W-2 forms, mortgage interest statements, year-end brokerage statements, interest/dividend income statements, etc. This may seem like overkill, but you never know when you might need these documents for other purposes.
* Supporting documents. These are things like cancelled checks, receipts, expense and travel diaries. With respect to retaining these items: three years minimum, five years is better, and seven years is best. How long you keep these records depends on your storage area and/or tolerance for potential audit.
* Stock/bond/mutual fund purchase confirmations. These are documents that you need to retain during the time that you own the stock or mutual fund. They can be destroyed 3/5/7 years after the date of the sale of these assets. While many brokers are now reporting your fund purchase price, many records are still unavailable to them, so they cannot report your cost basis. It's ultimately up to you to prove your cost of these purchases.
* Real property escrow/title statements. This is the document that you receive when you purchase property. Generally called a HUD-1, closing statement, or settlement statement, they are provided to you at your property closing by your title agent, escrow agent, or attorney. These are also documents that you need to retain during the time that you own the property in order to prove your purchase price at the time that you sell the property. The ultimate purging of these documents also follows the 3/5/7 year provisions after the date of the sale.
And when you do finally decide to get rid of those old documents, do so carefully. Many documents will carry your social security number, bank/brokerage account number, and other bits of information that could lead to theft of your identity. So make sure that any documents that you get rid of are properly shredded or otherwise completely destroyed.
Employers Have a New Withholding Obligation
The Medicare tax that employees pay on their wages increases this year from 1.45% to 2.35% on earnings over $200,000 for singles and $250,000 for married couples.
Employers are required to withhold the additional tax from wages exceeding $200,000, regardless of the individual's marital or filing status. They are not required to inform employees when they begin the additional withholding, nor are they required to match the additional withholding. Employers who fail to do the required withholding may be subject to penalties, in addition to the tax.
What's New in Finances:
Disability Insurance Is Important Coverage
Statistics published by the Social Security Administration state that just over one in four of today's 20-year-olds will become disabled before they retire. Other statistics show that 68% of adults have no savings set aside for emergencies such as a period of disability.
These facts lead to one conclusion: Most individuals should consider disability insurance in their financial planning. To get the right coverage for you, take the following steps:
* Scrutinize key policy terms. First, ask how "disability" is defined. Some policies use "any occupation" to determine if you are fit for work following an illness or accident. A better definition is "own occupation," whereby you receive benefits when you cannot perform the job you held at the time you became disabled.
* Check the benefit period. Ideally, your policy should cover disabilities until you'll be eligible for Medicare and social security.
* Determine how much coverage you need. Tally the after-tax income you would have from all sources during a period of disability and subtract this sum from your minimum needs.
* Decide what you can afford. Disability insurance is not inexpensive. Plan to forgo riders and options which boost premiums significantly. If your budget won't support the ideal benefit payment, consider lengthening the elimination period (but be sure that accumulated sick leave, savings, etc., will carry you until the benefits kick in).
Ask your insurance agent about the options available to you.
Discuss Financial Issues With Elderly Parents
As life expectancy rises, children increasingly find themselves taking care of elderly parents who are often in deteriorating physical or mental health. This can be stressful, both emotionally and financially. But at least on the financial side there are some things you can do to make it easier.
The first thing to do is to talk to your parents about their financial affairs. This may be difficult. Not only is the topic unpleasant, but most parents are reluctant to share their private affairs, even with their children. But persevere. You need to know the names of their lawyer and accountant and details of their bank accounts and insurance policies. Do they have a will, and if so, where is it? If they're still fit, encourage them to make up a list of the details for you. If not, you'll have to assemble it with their help. But don't delay. A sudden accident or illness could leave them physically or mentally impaired, and you'll have to hunt through their records to find the information.
Once you know their financial picture, you can start to fill in the blanks. At a minimum they should have a will, and you should have a durable power of attorney allowing you to act for them if they are disabled. Encourage them to set up a living will, giving directions for their medical care. Review whether their retirement income and savings are sufficient, especially if they might eventually need nursing home care. Assess whether long-term care insurance makes sense for them. Check out whether Medicare or Medicaid might help.
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.