IRS Releases Inflation-Adjusted Tax Numbers for 2009
2008 Tax Rebates Still Available for Some
Welcome to Craft, Noble and Company’s e-news update – your quarterly brief on the most up-to-date tax talk and advice.
As we continue to deal with the economic downturn, many of us are concerned about what long-term effects this will have on our personal and business finances. Be assured that Craft, Noble and Company is here to assist you through these challenging times. Whether you are seeking tax preparation assistance, business planning or other financial services turn to Craft, Noble and Company for expert advice and service. We look forward to working with you in 2009.
Health Savings Accounts (HSAs) have been slow to catch on with the public, but Congress is doing its part to champion their cause. It has tinkered with the law in recent years to make HSAs more appealing. In fact, you now have a once-in-a-lifetime opportunity — literally — to transfer funds tax-free to an HSA.
How does an HSA work?
Assuming you're eligible, you can set up an HSA yourself or participate in a plan through your employer. Any contributions you make are deductible above-the-line on your personal tax return, while your employer can deduct contributions made on your behalf.
For 2009, the maximum contribution allowed is $3,000 for an individual or $5,950 for family coverage. Plus, you can add a catch-up contribution of $1,000 if you're age 55 or over.
The big difference between an HSA and other tax-favored medical savings accounts is that the funds in an HSA can be invested, and the earnings grow tax-free. Withdrawals used for medical expenses are not subject to income tax. Also, unlike funds set aside for medical expenses in flexible spending accounts, unspent funds in HSAs remain in the account to grow tax-free year after year. After age 65, withdrawals can be made and used for any purpose penalty-free but not income tax-free.
As businesses look for ways to cut costs in the current economic slump, some are conserving cash by eliminating the company's matching contributions to workers' 401(k) accounts. These employer matches have been a popular employee benefit, with the employer typically contributing 50% of employees' contributions on up to 6% of their annual pay.
Whether suspending matching contributions is a smart business decision depends on a number of factors. Conserving cash may keep the business from having to lay off or cut employees. Indeed, in today's troubled economy, it may be necessary for the business's very survival. However, it's likely to affect worker morale at a time when workers are seeing steep declines in their own investment and retirement accounts. Such cuts may make a company appear to be in more dire straits than it really is, a perception that is not good for any business when things are tight. For more information about making smart business decisions in this very uncertain time, contact Craft, Noble and Company.
To be eligible to participate in an HSA, you:
• Must have a qualifying high-deductible health insurance policy in effect.
• Cannot be entitled to receive benefits under Medicare.
• Cannot be claimed as a dependent on another person's tax return.
• Cannot be covered by another health insurance plan other than a qualifying high-deductible health insurance plan.
For 2009, a "high-deductible" policy is one with a deductible of at least $1,150 and out-of-pocket maximum of $5,800 for individual coverage; a deductible of at least $2,300 and out-of-pocket maximum of $11,600 for family coverage.
Tax bonus. Under the tax law, you can roll over funds from a traditional individual retirement account (IRA), a health reimbursement account (HRA), or a flexible spending account (FSA) to a Health Savings Account without any income tax consequences. Normally, a rollover of this type would constitute a taxable distribution, with a 10% penalty tax if you're under age 59½.
This tax break can be especially valuable to retirees and employees nearing the end of their careers. Also, a transfer from an FSA could make a lot of sense when FSA contributions can't be used up and would otherwise be lost.
The catch. You can only do this rollover once in your lifetime, and if the rollover is from an FSA or an HRA, it must be done before 2012. Also, the transfer amount is subject to limits. Before you make the rollover election, be sure this is the right move for your situation. For details and assistance in deciding how this tax break might benefit you, give Craft, Noble and Company a call.
When was the last time you reviewed your insurance coverage? An annual insurance review makes good financial sense. Here are points to consider as you review your various insurance policies.
Health care. If you have an individual policy, investigate whether your employer, union, or professional association offers a less expensive group policy.
Long-term care. Long-term care insurance may be advisable if you're between the ages of 55 and 72 and you don't have enough assets to fund long-term care.
Life. The protection you need depends on the number of people who rely on you for support. Whole, variable, and universal life policies combine insurance coverage with an investment future. If you want insurance only, consider term life.
Disability. Studies show that less than one American in six owns enough disability insurance to provide a comfortable lifestyle during a two-year disability. Disability coverage is generally limited to 60%-70% of salaried income. If you have adequate emergency funds, electing a longer waiting period for coverage to kick in will reduce your premiums.
Homeowners. With fluctuations in the real estate market, it's possible that your home is now under- or over-insured. Coverage equal to the current replacement cost (excluding land), not its original cost, is advisable.
Auto. Liability insurance is a must, but consider dropping collision coverage if you can afford to repair or replace the vehicle on your own. Collision insurance is probably required if your car is financed or leased.
Umbrella liability. Personal liability coverage is included with most homeowner and auto policies. However, if you own substantial assets, umbrella coverage will provide additional protection at minimal cost.
Unnecessary insurance. Avoid policies with narrowly defined coverage (such as credit, travel, or cancer insurance) if they duplicate other coverage.