Janell A. Israel & Associates

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

October 2013 Tax Newsletter

What's New in Taxes:

IRS Issues Rules on Recognizing Same-sex Marriages

Married same-sex couples will be treated for federal tax purposes just like opposite-sex couples, according to a recent IRS announcement. Same-sex couples who were married in a jurisdiction, domestic or foreign, that recognized their marriage as legal will be treated as married for federal tax purposes even if they live in a state that does not recognize same-sex marriages as legal.

The rule, known as the "state of celebration" rule, will allow same-sex couples to live anywhere they like, provided they were married where same-sex marriages were legal.

The IRS rule applies to all federal taxes - income, gift, and estate taxes. Areas that will be affected include such things as personal and dependent exemptions, social security benefits and taxes, IRA contributions and other IRA rules, and tax credits.

Don't Get Tripped Up by a Wash Sale

Are you eyeing your portfolio with year-end investment loss harvesting in mind? Before you place those sell orders, take a moment to review the "wash sale" rules.

A wash sale occurs when you sell a stock, bond, or mutual fund and buy the same or a substantially identical security within 30 days before or after the sale. When this happens, you're barred from deducting a tax loss on the sale. Instead, your cost basis of the new security is increased by the loss.

Example. Say you sell 100 shares of XYZ mutual fund at a loss of $3 per share. A week later, you regret your decision and buy another 100 shares of XYZ fund. Your original loss of $300 will be disallowed, and you'll add the $300 to your cost basis in the new shares.

Beware this trap. Also be aware of a possible trap if you use an automatic purchase plan or dividend reinvestment plan. If these plans cause you to acquire more shares of a stock or fund within 30 days of a sale, the wash sale rules will apply to your sale.

How can you avoid a wash sale? You can avoid a wash sale if you make your purchase more than 30 days before or after the sale date. Also, you can buy shares in a different but similar stock or mutual fund without triggering a wash sale.

If you have questions about the wash sale rules, please call us.

New Business:

Employer Health Insurance Mandate Delayed for One Year

The health care reform law passed in 2010 included a provision that would require employers of 50 or more full-time employees to provide affordable health insurance to their workers or face steep penalties. That provision was scheduled to take effect January 1, 2014.

The Treasury Department has announced that the effective date of this provision will be postponed for one year. The mandatory employer and insurer reporting requirements and any penalties connected with them will be delayed in order to allow more time for companies to adapt to meet the requirements.

What's New in Finances:

Deadline for Undoing a Roth is Approaching

If you converted your traditional IRA to a Roth IRA in 2012 and now wish you hadn't, you'll want to know about this October 15, 2013, deadline. Up until that date, you can change your mind about the original conversion and switch your Roth back to a traditional IRA without penalty.

The tax term for this "do-over" election is recharacterization. It works like this: Say the value of the assets you converted to a Roth during 2012 has declined. That means if you had waited until now to convert, you would have ended up paying less tax. Reversing your 2012 decision puts you back in the position you were in before the Roth conversion and wipes out your original tax liability.

Even better, you can still do another traditional-to-Roth conversion after recharacterizing. While the option of splitting the income over future years is no longer available, you can achieve the same effect by reconverting over a multi-year period. Just be aware that time restrictions may apply on this strategy. For details or assistance, give us a call.

How to Keep Bank Fees Low

Today many financial institutions are charging new fees - and increasing the level of existing charges - to lessen their exposure to volatile markets. As a consumer, it's prudent to know about these various fees and how to avoid at least some of them.

* ATM fees. Banks make billions each year on automated teller fees, and they can add up quickly for consumers. For example, two "foreign" withdrawals a week (from a bank that's not your own) could cost you over $300 a year in fees. Generally speaking, you won't be charged for withdrawals from your own bank's ATM, but if you use another bank's automated teller, expect to be charged as much as three dollars per transaction. Fortunately, this is an easy fee to avoid. Some financial institutions belong to networks that have agreed to waive ATM fees for their customers. Find out which banks or credit unions are tied to your network and frequent only those ATMs. Also, instead of making lots of little withdrawals to get your lattes and toothpaste, make less frequent larger withdrawals from your own bank's automated teller. Of course this takes discipline, both up front and after the money's in your wallet. But ask yourself, "Do I really want to pay hundreds of dollars a year in ATM fees just to get my own money?"

* Overdraft fees. Banks will charge you if your account doesn't have sufficient funds to cover checks, ATM withdrawals, and electronic payments. These fees can really hurt. For example, a bank might charge $25 for the first bounced check, $30 for the next three incidents, and $35 for checks that bounce thereafter. Some accounts have "courtesy overdraft" or "bounce protection" features, but often these come with a hefty price tag to cover overdrafts. How can you avoid overdraft fees? Reconcile your bank balance with your check register every month. Record checks and online bill payments at the time of each transaction. Review your account balance during the month, either by phone or online. If you're not the world's greatest bookkeeper, keep extra cash as a cushion in your account as your own "overdraft protection."

Overdraft fees, ATM charges, and other fees can be avoided with a little forethought and discipline.

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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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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.