December 2010
FLA Blog
Jim Oliver & Associates, P.C.
FB Bancorp Building
17300 Henderson Pass
Suite 240
San Antonio, TX 78232
p:210.344.0205
f:210.344.4362
cpa@teamoliver.com
www.teamoliver.com
Financial Life Advisors
FB Bancorp Building
17300 Henderson Pass
Suite 290
San Antonio, TX 78232
p:210.918.8998
f:210.344.4362
advisor@teamoliver.com
www.fladvisors.com
This firm is not a CPA firm.
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December Tips -
Social Security Publishes New Rule Revising Withdrawal Policy
- According to a new press release, Social Security is modifying the rules for withdrawing applications.
- Now application withdrawals can only be made one year after filing and they are limited to once per lifetime.
- This effectively eliminates the Social Security "Do-Over" where benefits are taken early and repaid at a later age (say 70) to increase the benefit.
Articles in this Month's Issue
Tax Planning for 2010 Down to the Wire
As a changing power base in Washington wrangles over tax policy in the waning days of Congress’ lame duck session, millions of families and investors are reluctantly awaiting the return of the estate tax and presumably much more stringent rules on gifting.
Already it’s been a strange year for taxes. At this writing, the estate tax remained repealed in 2010, meaning that individuals dying during 2010 will be free to pass down their estates to heirs without any estate tax at all. However, as of Jan. 1, 2011, that picture will change drastically without any form of Congressional action – the estate tax will roar back with a vengeance with a low $1 million exemption per individual, down from $3.5 million in 2009, and a 55 percent top rate, up from 45 percent.
Also, the generation-skipping transfer (GST) tax – which also was repealed in 2010 – is also expected to return in 2011. It will carry a similar $1 million exemption in 2011, down from $3.5 million in 2009. While not as well known as the estate tax, the GST was written to prevent wealthy families from gifting assets to grandchildren as a strategy to cut their tax liability. In short, without any significant changes in tax policy, starting in 2011, individuals might see such gifts become subject to double taxation – the GST or either the estate or gift tax.
While there may be solutions even at this late date, the best choice is to seek out trained advice from both qualified tax, legal and financial planners, preferably in tandem. For wealthy taxpayers with a few years to go until retirement – or even until grandchildren arrive – it’s also not a bad time to be thinking about your individual estate plans and how you’ll manage assets as you get older.
In the meantime, consider the following strategies on gifting:
Start with the basics: Grandparents – and parents, for that matter – can avoid the gift tax by giving up to $13,000 per recipient per year to each child or grandchild. Above that amount, remember that the gift tax stands at 35 percent in 2010 but is scheduled to rise to 55 percent in 2011.
You can go farther: You can gift an additional $1 million all at once or over an extended period on top of each $13,000 gift by borrowing from the amount you’ll be able to shelter from the estate tax.
Opt to pay medical or tuition bills: If you pay a family member’s school or hospital directly, you may give an unlimited amount. It’s also important to know that you can do that on behalf of anyone, not just family members.
Don’t forget charity: Charitable giving is not something that’s done only in someone’s will. You can donate assets to a charitable gift fund or community foundation where your investment grows tax-free and you can designate charities you plan to give to before and after you die.
And keep in mind some general last-minute tax planning advice:
Max out your retirement contributions: For 401(k)s, you have until Dec. 31 to make your 2010 contributions. The limit per employee is $16,500 with an extra $5,500 allowed to taxpayers 50 and older. IRAs have later deadlines.
Empty your flexible savings accounts: Flex accounts must be emptied out by yearend (or by the end of your company’s standard grace period) or the money must be forfeited. Double-check the many items that qualify, because that list will get smaller last year – no over-the-counter medicines can qualify for Flex spending without a prescription.
Take advantage of energy credits: The Residential Energy Property Credit expires Dec. 31. Taxpayers spending for qualified improvements ranging from roofs to insulation and water heaters can qualify for a credit up to $1,500.
December 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Jim Oliver, a local member of FPA.
Who Benefits from Health Care Reform?
There's plenty of debate about whether the new health care reform bill is good for America. Whatever your views, it looks like the Affordable Care Act - a massive piece of legislation passed by Congress in March - is here to stay.
The majority of Americans without health insurance are the owners or employees of small businesses. For many of these individuals, health insurance has been unaffordable for themselves, their families, and their employees.
But the new legislation is set to change that. It makes it less expensive to purchase insurance - and it provides tax credits for small business owners who do.
And, because the aim of the bill is to get the vast majority of Americans at least minimally covered, the Act imposes tax penalties on those who don't purchase insurance.
If you own a small business or are a sole proprietor, read on for an overview of how the bill affects you. What Do Small Businesses Get?
Cheaper Insurance through Health Exchanges. The Affordable Care Act sets up state-run Health Insurance Exchanges that allow individuals and small business owners to get the same discounted insurance rates larger corporations have been enjoying for years. This makes coverage much more affordable for these folks.
Tax Credits. The Act comes with $40 billion in tax credits for small businesses who offer health insurance coverage to their employees. The federal government expects that more than 60% of small employers - or 4 million firms - will be eligible for these incentives. These are meant to recover some of the companies' cost of offering coverage.
Effective now, if your business employs 25 or fewer people who are making $50,000/year or less on average, you get up to 35% credit on health insurance premiums. The credit is based on a sliding scale, with smaller companies that have lower-paid workers receiving the largest credit.
In 2014, if you buy that insurance through a Health Care Exchange, the maximum credit rises to 50% for 2 years.
Tip: The tax credit cannot be claimed by small business owners themselves or self-employed individuals. However, those folks may be eligible for federal subsidies. See the guidelines below. What If You're Self-Employed?
Individuals who work for themselves can buy insurance on the health exchanges and also receive more affordable rates.
To help pay for the premiums, people whose annual income is up to four times the poverty level receive federal subsidies.
Tip: Individuals can make up to $44,000 and still qualify for subsidies to pay for their health care from health exchanges. A family of four can make up to $88,000.
Note: To help pay for health care reform, taxpayers in the highest tax bracket - those making $200,000 individually or $250,000 married - will see a rise in their Medicare taxes. Medicare Part A taxes will rise by .9%, and taxes on unearned income will increase by 3.8%. These changes take effect January 1, 2013. The Coverage Mandate - Are You Affected?
Small businesses with 50 or fewer employees are not required to provide insurance to their employees under the new health care law.
However, larger companies with more than 50 full-time employees do need to provide insurance, beginning in 2014, or face tax penalties of $2,000 annually per worker above 30 workers. Everyone Must Participate - or Face a Fine
If you don't buy coverage, you're faced with a tax penalty to the federal government, beginning in 2014. This fine starts fairly small, but by 2016, when it's fully phased in, it's more substantial. An insurance-less person would have to pony up whichever is greater: $695 for each uninsured family member, up to a maximum of $2,085; or 2.5 percent of household income. Special Attention for Three Industries
Employers in three industries - tanning salons, construction, and restaurants - see these specific changes under health care reform:
Tanning Salons. In July 2010, a 10% sales tax was instituted on individuals using tanning salons. The revenue raised by this measure is meant to help pay for the costs of the Act.
Construction. In the construction industry, a higher percentage of companies must comply with the 2014 coverage mandate - those with just 5 or more employees.
Restaurants. Under the mandated insurance provision that goes into effect in 2014, two part-time workers equal one full-time worker. Want to Know More? Give Us a Call
There's a lot more to the Affordable Care Act than we've covered here - including the elimination of denial of coverage for pre-existing conditions and free preventive care. At a whopping 2,600 pages, this bill is complicated and far-reaching.
If you have any questions about how this bill affects your business and your tax obligations, please let us know. We're here to help.
Ensuring Your Family's Security with an Estate Plan
No matter what your net worth, you should have an estate plan in place. Such a plan ensures that your family is cared for and your assets maximized upon your death. An estate plan consists of your will, health care documents, powers of attorney, life insurance coverage, and post-mortem letters.
For those of you with an estate plan already, good for you! But we have additional advice: make it a priority to review the plan every two years to see whether it needs updating.
Here are the life events that necessitate an update to your plan: - Divorce
- Marriage or remarriage
- Birth/adoption of child
- Death of spouse or child
- Sale of residence or purchase of new residence
- Retirement
- Enactment of new tax laws
Tip: We suggest that you consult with the professional who prepared your estate plan should any of these events occur.
Here are some of the action steps you may need to take when you update: - Change an executor
- Revise a will to account for an increase in assets
- Reassess your life insurance needs
- Add or change a power of attorney
- Change legal documents to comport with state laws if you move to a different state
- Change wills or trust instruments to account for changes in beneficiaries
- Change your post-mortem letter to reflect new assets, changes in executors, or other changes
Because of the recent amendments to the estate tax laws, many estate plans may need to be revised. Give us a call for a review of your situation.
With Premiums Increasing and a Major Carrier Exiting the Market,
Should You Still Consider LTC Insurance?
On Nov. 11, insurance giant MetLife said it would sell no new long-term care (LTC) insurance policies after Dec. 30 though it would continue to service its 600,000 insured customers. The reason? “Financial challenges” in the long-term care insurance industry.
What does that mean?
In short, that long-term care costs have proven unpredictable in the insurance industry, a world that definitely likes predictability. According to Genworth Financial, a marketer of LTC insurance, the cost of assisted living has climbed at an annual rate of 6.7 percent over the past five years and the price for a private room in a nursing home jumped 4.5 percent annually over that timeframe. Insurers have been increasing LTC premiums to combat this cost rise, making recession-battered 2009 one of the worst years for policy sales.
It’s unclear whether other major carriers might join MetLife, but their decision adds some uncertainty to the picture for long-term care planning, one of the most important ways to protect retirement funds.
For some needed perspective, it makes sense to visit a qualified financial planning expert who can look at your complete financial picture and make a recommendation.
Here are some of the questions you need to answer before investing in long-term care insurance or other options:
What resources do you have? We’re not just talking about money here. While caregiving puts a strain on family, it’s important to consider whether family and friends are truly willing and able to help with your care, which can provide a considerable financial and emotional benefit. Also, if you live in a community with reliable volunteer resources to help, that’s something to note, though today’s services may not be there tomorrow.
How old are you and your spouse and what’s your health history? People in good health purchasing long-term care insurance at the age of 55 usually get the most affordable deal in LTC insurance. But an individual’s family health history and current health status are the real determinants of what your LTC insurance policy will cost – or if you’ll qualify for coverage at all. Also, it’s important to note that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time.
Are you a single female? Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.
What types of services are covered? Over the course of time, long-term care policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to recover or live out their last days in a familiar environment. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence, and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services are generally covered and other services as listed in the policy.
What triggers coverage? A qualified LTC policy won’t go into effect until the covered individual can’t perform two tasks of daily living for a period, typically 90 days, or when that person needs substantial supervision related to cognitive impairment. This is where you have to read the fine print since some policies are more restrictive than others. More affordable policies generally take longer to kick in. See if coverage for other physical ailments is available as part of the policy and what per-diem or monthly allowances are offered.
How healthy is the insurance company? While it’s impossible to tell the future – or when a major carrier wants out of a particular line of business – it’s generally better to go with a larger, higher-rated company.
How affordable will the policy be if your premium increases? If you can barely afford LTC coverage now, it’s going to be much tougher to afford premiums if they go up over time. Talk with a planner about other options if that’s the case.
What about an annuity? There are hybrid annuities that also carry long-term care coverage. These products allow policyholders to use the proceeds for LTC coverage, for income or for both. The proceeds that go to pay for long-term care costs for the policyholder would not be subject to federal tax. These long-term care annuities can generate tax-deferred gains, which works particularly well for those in high tax brackets who believe they will be in a lower bracket by the time they would need to draw on that coverage.
December 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Jim Oliver, a local member of FPA.
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