tax planning
New rule for FSA and HSA medicine coverage
Tuesday, September 28th, 2010 | tax | 1 Comment
Many employers and employees are looking at benefit plan decisions this time of year. A rule change in the Affordable Care Act (healthcare reform) goes into effect January 1, 2011 that may change your calculations for your flexible spending arrangement (FSA), health reimbursement arrangement (HRA), Health Savings Account (HSA), or Archer Medical Savings Account.
The new rule requires a prescription for nonprescription medicines and drugs (over-the-counter drugs), with the exception of insulin, to make them eligible for reimbursement under these arrangements. For example, if your doctor recommends an over-the counter acid reducer for your heartburn after January 1, 2011, ask him or her to write a prescription for it. Then you can use your FSA, HRA, HSA, or Archer account to pay for it with before-tax dollars. Without a prescription, the expense will not be reimbursable or deductible even if it is for a specific medical condition.
If you use a debit card to pay for medicine through your FSA or HRA, you may not be able to use it to buy over-the-counter medicine in 2011 even if you have a prescription (check with your provider). Whether you use a debit card or not, be prepared to prove the legitimacy of the claim with a receipt and a copy of the prescription (or Rx number on the receipt).
You will still be able to get reimbursement in 2011 under the current rule for purchases made before January 1, 2011.
Employees should consider whether this rule change will affect wage amounts you designate for FSA, HRA, HSA, or Archer accounts as you enroll for the new benefit year. Employers need to analyze how the new rules affect your benefits package. The IRS is giving employers a grace period until June 30, 2011, to amend your cafeteria plan to comply with the new rule retroactive to January 1, 2011.
Better Property Settlement in Divorce
Friday, August 20th, 2010 | litigation, tax | No Comments
We’ve heard it said that the second most contentious issue in a divorce (after the children) is the property settlement. One side may resort to unusual measures to reduce the property settlement, while the other side may be seeking revenge or punishment through the property settlement. The intense emotions complicate the process of determining an equitable settlement.
We provide services to attorneys in all types of cases with financial issues. They may involve valuation of a family business, forensic accounting to aid in the process of ascertaining what assets are available for the settlement, and calculation of the needs of the spouse and children for maintenance and support. We also advise about the tax implications of various settlement options. Answers to all of these questions are vital in coming to an equitable settlement.
Our role varies with each case. For example, in a recent case, we assisted with discovery by ascertaining the true value of some marital assets and performing due diligence on the couple’s finances. With this improved information, the attorney was able to negotiate a significantly better settlement for his client than the initial offer. This is just one of the many ways we help improve results for our clients.
Steinbrenner’s estate tax feat
Wednesday, July 14th, 2010 | tax | No Comments
Yankees owner George Steinbrenner’s death this week is a sad occasion for his family and friends. But because it happened this year, it resulted in a huge tax savings for his heirs. As explained in this Wall Street Journal article, the 2001 Bush tax cuts left a quirky Federal estate tax repeal for this year only. Congress did nothing to fix this anomaly.
With Mr. Steinbrenner’s estate estimated at $1.1 billion, that means his heirs will inherit as much as $600 million that would have gone into the Federal treasury, based on the rate when the estate tax resumes in 2011 (55% maximum on estates over $1 million). He joins another high-profile billionaire whose passing we wrote about a few weeks ago.
Here’s a morbid thought: Will death become the ultimate tax-planning tool this year? I shudder at the thought.
Death, But No Taxes
Tuesday, June 22nd, 2010 | tax | No Comments
Even though the federal estate tax only affected about 5500 decedents in 2009 before it was repealed for one year, Congress’s inaction in reversing the repeal has cost the government big money, even by their standards. In this New York Times story, we learned that Houston’s richest man died last spring. Dan L. Duncan was a natural gas tycoon (EPCO, Dan Duncan L.L.P., Enterprise GP Holdings) whose fortune was estimated by Forbes at $9 billion, ranking him number 74 among the wealthiest in the world. If he had died in 2009, his estate would have paid up to $4 billion in taxes; in 2011, that amount might have risen to $5 billion. This year, his estate passes tax-free to his wife, children, grandchildren, and various charities.
If and when his heirs were to sell some of the assets, the substantial gains would be taxed at rates ranging from the current 15% capital gains rate to the maximum income tax rate, which is still lower than the estate tax rate. But that could be many years in the future. In the meantime, the federal government has missed out on perhaps as much as $25 billion of revenue (the estate tax take in 2008).
There are strong and valid arguments on both sides of the estate tax issue, from political, economic, and humanitarian points of view. The plain fact is that this is one revenue stream for the federal budget that dried up for this year. Care to guess who they will tap to make that up?
The federal estate tax returns in 2011 for estates valued at $1 million, if Congress leaves current law intact. (The cutoff in Tennessee has been $1 million for several years, and was unaffected by the federal law.)
Savvy estate planning can help your family keep more of its assets and minimize the tax liability. We were part of a team of professionals who reduced a family’s taxable estate through good planning from about $8 million to about $2 million, saving them a $3 million tax hit that would have forced them to sell all of their real estate holdings into a depressed market.