Last Minute Tax Savings (WSJ)

The 10 Money Moves to Consider Before 2010 Expires Did You Give Holiday Gifts to Co-Workers? You Might Be in Luck on Taxes.

By JENNIFER OPENSHAW

New Year's Eve is almost here, but don't let that stop you from making some important money moves now, before Dec. 31, so you can reap the benefits in 2011.

Michael Casey says that with New Year's Eve almost here, you will want to consider these important money moves before year end to reap benefits in 2011.
.1) Take investment losses. The end of the year is a great time to review your portfolio and your asset allocation. If you have a dog of a stock or mutual fund that you want to eliminate, it is often a good idea to do it by Dec. 31.

The losses you take can offset the gains you have realized on other stocks or funds and help reduce your tax bill.

For example, say you sold your Apple stock and made $10,000. But you have a poor-performing fund relative to other options that, if you sold it, would result in a $5,000 loss. When taken together, the losses from selling leave you with a net taxable gain of $5,000, far less than had you not sold the investment dog.

2) Max-out your retirement accounts. Many companies have reinstated their 401(k) matching contribution after wiping it out during the recession. But even if not, your 401(k) is still one of your top savings vehicles, and you should fund it as much as possible by year-end. The maximum contribution in 2010 is $16,500 plus $5,500 for those 50 and older.

3) Check your paycheck withholding. The new tax law means your take-home pay next year likely will be higher, thanks to lower Social Security taxes, which for most workers will be cut to 4.2%, from 6.2% now.

So, make sure you aren't having too much or too little withheld. Too much means Uncle Sam is earning interest on your money (though you will get a refund) and too little means you will have a tax bill.

While it is always a good idea to review your withholding annually, the new changes make it even more important. You should also review your withholding if you are an individual or couple with multiple jobs, are having children, getting married, getting divorced or buying a home, or are someone who typically winds up with a large refund at the end of the year.

4) Deduct holiday gifts up to $25 for business. Did you give any holiday gifts to co-workers, vendors, or prospective customers or partners? If so, you will want to keep those receipts since you will be able to deduct up to $25 for such gifts.

This means the $25 for those gourmet chocolate pretzels or toward tickets to the theater would actually run you about $17 out-of-pocket, depending on your tax bracket.
Also, you will want to include anything deductible for your holiday party so long as it had a business purpose.

5) Give to a relative and reduce your tax bill. We have written before about all the ways grandparents or simply those who have some extra wealth can help others, especially someone trying to close the college funding gap.

Give the gift of education or something else worthwhile while you are alive and you will not only reduce your taxable estate, but you will enjoy seeing it put to use.

You can give up to $13,000 a year to someone if you are single ($26,000 if married) without facing gift taxes. If you contribute to a "529" college-savings plan, however, you can front-load your gifting and give up to five times that amount in one year—that is $130,000 if you are a couple—without facing a gift tax. Nice.

6) Donate to a charity. 'Tis the season to give, and if you have been one of the lucky ones who did better financially than you expected, maybe you are up for sharing more of it. You can give cash or stock to a charity, but what's better?

If the stock is worth more than you bought it for, you are usually better off donating it to charity instead of selling it. That allows you to avoid the capital-gains tax on the profit. For example, say you bought 100 shares of a stock at $10 per share and they are now worth $30 per share.

If you donate the stock to charity, you won't have to pay the capital-gains tax on the $2,000 in profit. If you have had the stock for at least a year, you will also be able to deduct the fair-market value of it on your taxes, as long as you itemize.

On the flip side, if the value of the stock is less than you bought it for, you will probably want to cash it first so you can deduct the loss.

Of course, donating money is usually deductible (as long as you itemize). And if you are donating your services, remember that only mileage, not your time, is deductible.

7) Make an estimated tax payment early. If you didn't pay enough to the federal government last year, you may face an even bigger tax bill come April 15. For instance, maybe you didn't have enough taxes withheld from your paycheck or you made a chunk of money on an investment. If you pay estimated taxes, consider paying by Dec. 31.

8) Pay January's mortgage in December. Similarly, making a mortgage payment early will increase your mortgage deduction for 2010.

Perhaps all the talk about possibly eliminating this valuable deduction might spur you to move on this one.

9) Enroll in your employer's flexible-spending account. These accounts allow you to sock away up to $5,000 (the maximum amount varies by employer) on a pretax basis, much like a 401(k), to cover out-of-pocket health-care costs. Also, find out whether your employer offers a similar benefit for child-care expenses.

Open enrollment is typically the only time to make changes to your plan and that is usually in November. However, you may be able to make changes if you have experienced a "qualifying life event," such as a marriage or divorce, a new child, a change in your employment or you go on family medical leave.

10) Contribute to your IRA. While you have until April 15 to fund your IRA, whether a Roth or traditional, getting it done before then will leave you with one less thing to worry about.

At a minimum, get the paperwork done to open an account if you don't have one already. The maximum you can contribute is $5,000 and an additional $1,000 for over-50 retirement savers for a total of $6,000. And don't forget your nonworking spouse—you can save for him or her, too.

Copyright 2010 Dow Jones & Company, Inc. All Rights Reserved

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Things to Do Before End of the Year: Tax Tips (WSJ)

Smart year-end tax moves

BY Laura Saunders,

The Wall Street Journal — 11/13/2009

Time to review your taxes — before it's too late.
Year-end tax planning always makes sense, but this year it's especially vital.

Convulsions in the markets and the economy have shifted the ground beneath many taxpayers, and next year may bring major tax changes as lawmakers confront the record deficit.

Bottom line: review your taxes before it's too late. "Too often, I can't do anything for people who come to me in February," says Douglas Stives, an accountant with Curchin Group in Red Bank, N.J.

Here are areas especially relevant now. (For more details, go to www.irs.gov.)

First-time home-buyer tax credit
Congress has just extended and altered this benefit, making it more generous for many. The new rules took effect on Nov. 6. The provision is a true dollar-for-dollar tax credit of up to $8,000 for 10% of the cost of a home. The credit is also refundable, meaning that even if a buyer doesn't owe $8,000 of tax, she can claim the full benefit and receive a refund check.

The new law has more generous phase-outs. The credit now begins to disappear for single taxpayers with modified adjusted gross incomes of $125,000 and married couples with incomes of $225,000. It is available for purchases through July 1, 2010 if the buyer has a contract in place before May 1, 2010. Unlike the prior law, however, this credit is capped: those buying homes for more than $800,000 get no credit at all, as of Nov. 6.

The new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is a refundable credit for 10% of the purchase price of a house costing no more than $800,000. To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer's principal residence.

There are interesting twists. Two or more unmarried people buying a house together may be able to allocate the credit as they wish, say to the lowest earner. Taxpayers who buy this year may also claim the credit on either a 2008 or 2009 return, and those who buy in 2010 can claim the credit either in 2009 or 2010. Some people claim the credit in one year rather than another to avoid phase-outs.

Unemployment benefits
Alas, these are subject to income tax. But this year there is an exemption of $2,400 per individual. Still, many unemployed taxpayers receiving benefits may need to estimate and pay quarterly taxes or risk penalties when they can least afford them. IRS spokesmanEric Smith points out that all recipients can choose to have 10% of benefits withheld by the payer. "That should protect many," he says.

American opportunity credit
In the roster of fiendishly complex and highly limited education incentives, this one is more useful than most. It is a tax credit for as much as $2,500, generated by spending on tuition and other education expenses (books, possibly a computer) up to $4,000. Currently this credit is available for 2009 and 2010 to single taxpayers with less than $80,000 of modified adjusted gross income and married couples earning less than $160,000. Amounts paid in 2009 for the spring of 2010 are eligible for a 2009 credit.

New car purchases
Taxpayers who buy a new car before Jan. 1, 2010, may deduct sales and excise taxes and other fees on as much as $49,500 of the purchase price. This provision has generous phase-outs: It disappears between $250,000 and $260,000 of modified adjusted gross income for married couples and $125,000 and $135,000 for singles.

Retirement savings
Have you just started a job? Remember that you can still put in an entire year's 401(k) contribution, which is $16,500 ($22,000 if you're over 50). "Some workers who begin a job in the last quarter arrange to have an entire paycheck or two go into the plan," says Melissa Labant, an attorney with the American Institute of CPAs.


Charitable gifts
Unless Congress acts, this will also be the last year for taxpayers over 70 1/2 to make a charitable contribution directly from an IRA. This provision is useful: without it, the donation would have to be withdrawn from the IRA, claimed as income and then deducted as a donation. That, in turn, can trigger deduction limits or jack up Medicare premiums in the future.

Investments
Take losses! Even after the run-up following the lows of last March, many investors still have long-term capital losses on investments held longer than one year. Taxpayers may deduct up to $3,000 of these losses per year against ordinary income, with the excess carried forward for use in future years. The assets must be held in cash accounts, as opposed to IRAs and other tax-sheltered retirement plans.

Capital losses also may be matched dollar-for-dollar against long-term capital gains — so if you have $20,000 of long-term losses on some investments and $15,000 of gains on others, after the $3,000 deduction, you'd only have a net loss of $2,000 to carry forward. What's more, if you are bullish on an investment with gains and you sell it to soak up losses, you may buy the winner back right away. The tax code's "wash sale" rules only apply to losers, which can't be purchased for 30 days either before or after a sale. Note: The IRS also prohibits selling a loser from a regular account and then repurchasing it within an IRA inside of 30 days.

The current top capital-gains tax rate of 15% is the lowest in decades, and it is almost certain to rise at some point as the government scrambles to pay down the deficit. "If you have a buyer and a decent price, think about selling," suggests Mr. Stives of the Curchin Group.

Medical expenses
This has long been one of the least useful deductions in the tax code, unless a taxpayer is seriously ill or in a nursing home, because the taxpayer must spend more than 7.5% of adjusted gross income to claim any deduction. But rising insurance costs and diminishing coverage plus this year's economic tumult may qualify more people for this deduction.

In general, taxpayers may deduct all un-reimbursed medical expenses recognized by the IRS. This category includes after-tax dollars spent on insurance premiums, Medicare Part B and D premiums, and co-payments for drugs and treatments. It also extends to costs that insurance almost never covers- such as weight-loss plans (if prescribed for a medical condition), lead abatement, bandages, wigs after chemotherapy, acupuncture, and medical travel (24 cents per mile). But it typically does not cover expenses for over-the-counter drugs such as aspirin or antihistamines, which some Flexible Spending Plans reimburse.


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Copyright © 2009 Dow Jones & Company, Inc. All Rights Reserved.

Things to Do Before End of the Year: Medicare Options (NY Times)

October 31, 2009
Patient Money
Now Is the Time to Weigh Medicare Options
By WALECIA KONRAD
MEDICARE recipients, it’s your turn.

For the last few weeks, my Patient Money colleague Lesley Alderman and I have been giving advice on how to navigate the open enrollment season for employee health benefits. But Medicare enrollees must also do this annual drill, and in some ways their task can be more complicated.

While employees now typically face a dwindling number of options, Medicare recipients may have the opposite problem — a potentially overwhelming welter of choices. They may need to sort through dozens, even hundreds, of choices during the annual enrollment period, which runs Nov. 15 through Dec. 31.
Those already enrolled in Medicare, of course, might not need to do anything. Assuming the coverage they have now is not changing, and it’s working for them, they can probably stand pat. That might be particularly true for the 35 million people whose main coverage comes directly through the government. In that case all they may need to worry about is their Medicare D prescription drug plans provided by private insurers, if they have such coverage; about 17.5 million of these people in traditional Medicare have the separate drug coverage.

But as I explain below, there are various reasons that staying put might not be a good idea. And making a change means coming to grips with an array of Medicare options that has been expanding at a bewildering rate in the past decade.

There is the traditional Medicare A, which covers hospitalizations and is provided at no charge to enrollees, and Medicare B, which covers fees from doctors and other health care providers and requires a monthly premium. (Because there will be no Social Security cost-of-living increase in 2010, premiums for most current B enrollees will stay the same as for 2009, at $96.40 a month. However, most new enrollees will pay 15 percent more than that, $110.50 a month.
Seniors can also choose from a vast number of specialized plans from private insurers. There’s the Medicare D drug coverage, for example. But there are also fuller private-carrier packages called Medicare Advantage, which often bundle Medicare A and B with a drug plan, along with extra benefits like dental, vision and wellness coverage.
Each annual enrollment season you can change from traditional Medicare to a Medicare Advantage plan or vice versa. You can also add, change or drop a Medicare D plan. Keep in mind if you don’t sign up for Medicare D when you are eligible and you don’t have other creditable prescription drug coverage, you will be assessed a 1 percent penalty per month if and when you do sign up. This year’s annual Medicare enrollment period may be particularly tricky for some people. Because there are so many Medicare Advantage options available, the Center for Medicare and Medicaid Services — the agency that runs Medicare — eliminated about 18 percent of the Advantage plans, either because they were similar to other plans offered by the same company or they had very few members. (Even with those cuts, thousands of other Advantage plans still exist.)

As a result, an estimated 600,000 Medicare recipients must change plans this year because their former Advantage plans will no longer exist, according to data from Allsup, a provider of Social Security and Medicare consultation services based in Belleville, Ill.

If you’re new to Medicare this year you can find advice for first-time enrollees in an article I wrote recently for this newspaper: “Nearly 65? Time for the Medicare Maze.” ***see below

If you are already enrolled in Medicare, you’ll be receiving your copy of the 2010 “Medicare and You” handbook any day now. This government booklet will explain changes in this year’s enrollment period and provide information on different Medicare alternatives. Start your research by taking a close look at that publication, but do consider the following, too:

IS STANDING PAT AN OPTION? Determine if your existing plan is still available — and still right for you.

If you are a member of one of the private Medicare Advantage plans that has been eliminated, you should have received a notice from your insurer by now. If you have any doubts, call your insurer.

If you do nothing and your plan is eliminated, you will automatically be enrolled in traditional, government-provided Medicare A and B plans. But you will not be enrolled in a prescription drug plan and will have to do that separately through a private insurer during the Nov. 15-Dec. 31 enrollment period.

But even if your current plan will continue, you may also be ready to make a switch. If you’ve experienced any changes in your health or financial situation in the past year, it’s a good idea to sit down and take a close look at your existing plan. You may find your Medicare choice has out-of-pocket costs you can no longer afford.

Traditional Medicare can get expensive, with the monthly premiums, as well as a $1,000 deductible for hospitalizations and 20 percent co-payments for most doctor visits. With some Medicare Advantage plans you can lower those costs, says Paul Gada, Allsup’s personal financial planning director. (Some people also choose to buy a Medigap or supplemental policy to fill in what traditional Medicare doesn’t cover. See the recent Times article “Choosing a Policy to Cover What Medicare Doesn’t.”

On the other hand, if you’ve become sick, you may find you need more reliable and flexible coverage than your current plan provides. Most Medicare Advantage plans work on an H.M.O. or P.P.O. network system, so going to a doctor out of network can be difficult or more expensive. But almost all health care providers take plain old Medicare, says Judith Stein, founder of the Center for Medicare Advocacy, a nonprofit patients advisory group. That makes “traditional Medicare the most flexible option out there,” Ms. Stein said.

PICKING A NEW PLAN You’ll need to compare your options. That usually entails weighing prices and coverage for the Medicare Advantage plans offered in your area — to one another and to traditional Medicare.

In most cases, you’ll want to compare competing Medicare D drug plans as well. With these, you’ll want to look at price as well as which drugs are covered. Always make sure that the drugs you use will be covered by the plan you choose. Medicare D plans change the list of covered drugs from year to year, so it pays to call the insurer directly to check.

By now you’ve probably gotten an onslaught of mail from insurers that offer Medicare Advantage and Medicare D plans in your area.

“Companies are allowed to start marketing for the annual enrollment period on Oct. 1,” says Seemin Pasha, director of policy and communication at Health Assistance Partnership, a privately financed project of the Families USA consumer advocacy group. “But sifting through all these materials can be confusing.”

For help, log onto Medicare .gov. Along with lots of clear information, the site offers tools that will help you find private insurer plans in your area and help you compare prices and coverage.

You can also call or visit your State Health Insurance Assistance Program, known as SHIP, which is run by the government. Counselors provide information and help you compare plans without charge. To find the SHIP office in your state, go to www.hapnetwork.org/ship-locator. That office will refer you to the location in your county. Or call your local agency on aging and ask for a SHIP location near you.

For-profit companies like Allsup, for a fee, will help clients navigate the system and enroll in the plan of their choice. At Allsup, a range of services is available for about $200.

DON’T DELAY Try to sign up for your new coverage by early December, especially if you are choosing a plan with a private insurer.

Because the annual enrollment period ends Dec. 31 and coverage starts Jan. 1, late enrollees could experience some snags in the paperwork. Sign up early and you’re more likely to get on the books and get your insurance cards well before the new year starts.

Keep in mind if you do make a mistake or change your mind, the government allows some limited changes during what it calls open enrollment, from Jan. 1 through March 31. During this period you can switch from one Advantage plan to another or switch from an Advantage plan to traditional Medicare and vice versa.

What you can’t do, however, is join or switch a Medicare D plan, unless you already have a plan with prescription drug coverage, according to Medicare.gov. You also may not drop Medicare D coverage during this time.

***
October 15, 2009
Patient Money
Nearly 65? Time for the Medicare Maze
By WALECIA KONRAD
NOW that you’re about to retire, there’s good news and bad news about your health insurance. The good news: When you turn 65, you’re eligible for Medicare — all in all, a pretty affordable way to get coverage for doctor bills, hospitalizations and, more recently, prescription drugs. The bad news: You’ve got a big job ahead of you, sorting through the Medicare bureaucracy.

For someone new to the system, the hundreds of options Medicare provides can be daunting. “We’ve seen C.P.A.’s get stymied,” said Paul Gada, personal financial planning director at Allsup, a provider of Social Security and Medicare consultation services that is based in Belleville, Ill. “The process can be difficult for even the most savvy individuals.”

More important, the choices you make now as a new retiree may have consequences down the line when your health care and financial needs change. Confusing as Medicare may be, it is better to learn the ins and outs of the system early than to try to figure it out 20 years from now. The newly eligible have a seven-month period to enroll, starting three months before their 65th birthday. And numerous resources are available to help both newcomers and veteran Medicare users.

Not long ago, retirees simply went to their local Social Security office and signed up for Medicare A, which covers hospitalization, skilled nursing facilities, hospice and some home health care. Then they signed up for Medicare B, which provides coverage for doctor’s fees for a premium ($96.40 a month in 2009). That was the end of it.
Big changes in the way Medicare is distributed have made signing up a lot more complicated. In addition to A and B, enrollees can now buy prescription drug coverage under Medicare D. Dozens of private insurance plans offer Medicare D coverage, and the plans can differ widely in both premium costs and the drugs they cover.

The government also allowed private insurers to offer Medicare Advantage plans, which combine A, B and D benefits, often under a network like an H.M.O. or P.P.O. Many offer extras like dental, vision and wellness coverage. Hundreds of different Medicare Advantage plans are sold today, and depending on where you live, you could have dozens of choices.

Options may decrease slightly in 2010, said Marc Steinberg , deputy director for health policy at the health care advocacy group Families USA, because the Center for Medicare and Medicaid Services, the federal agency that administers Medicare, has vowed to consolidate similar plans from the same insurers to help reduce confusion.

In addition, many insurers may decide not to offer Advantage plans if the government subsidies given to these plans are cut, as many of the current health care bills have proposed. Finally, because Medicare deductibles and co-pays are high — a $1,000 deductible for hospitalizations, 20 percent co-pays for most doctor visits — many people elect to buy a Medigap, or supplemental, policy to fill in what Medicare does not cover.
With traditional Medicare and Medicare Advantage, it’s sometimes hard to get a handle on exactly what is covered. Physical therapy, for instance, is covered under traditional Medicare only if your doctor prescribes it and then only for a limited time. Traditional Medicare with a Part D and Medigap plan offers the most flexibility, said Judith Stein, founder of the Center for Medicare Advocacy. Because most health care providers throughout the country accept Medicare, there’s usually no need to change doctors when you join the system. “In addition, you have access to whatever specialists you’ll need, and you’re covered no matter where you are in the country,” she said.

Most Medicare Advantage plans, however, work on a network system, so going to a doctor out of network can be difficult or more expensive. And, because of the extra coverage, Medicare Advantage premiums are often higher than those for traditional Medicare, or coverage is restricted in other ways, like low limits on lifetime coverage, Ms. Stein said.
On the other hand, Mr. Gada said that a good Medicare Advantage plan could make the process of enrolling much easier. “It’s one-stop shopping for Medicare’s alphabet soup of plans,” he said. And for some people, the extra dental and vision benefits are extremely important, he added.

For help finding and comparing Medicare Advantage and Medicare D plans offered by private insurers, go to the government-run Web site www.medicare.gov. The site has clear and useful information and offers a tool that will help you compare costs and coverage among the various plans offered in your region.

But the tool is far from comprehensive, so you’ll probably still have questions, both about the system and what’s best for your needs. To get free answers, try your State Health Insurance Assistance Program, known as SHIP. Counselors provide information about traditional Medicare, help you find D and Advantage plans that fit your needs, and help you compare plan costs. To find the SHIP office in your state, go to www.hapnetwork.org/ship-locator. That office will refer you to the location in your county. Or call your local agency on aging and ask for a SHIP location near you.

For-profit companies like Allsup will, for a fee, help clients navigate the system, help them enroll and often offer customized advice on related health and financial matters like long-term care insurance. A range of services is available for about $200.

Medicare recipients can change plans each year during the open enrollment period, Nov. 15 through Dec. 31. So if you end up with a Part D or Medicare Advantage plan you do not like, or if your health or financial picture changes, you can take action at that time.

BUT there are some moves you may make now that will have financial consequences later. If you opt for traditional Medicare, for example, but do not sign up for Medicare B (perhaps to avoid paying the premiums) and you do not have qualified alternative insurance like retirement benefits from your employer, you will pay a financial penalty if you enroll down the line — 10 percent for each year you do not have coverage. Many Medigap plans also charge higher premiums or exclude pre-existing conditions if applicants do not sign up when they first become eligible for Medicare enrollment.

All Medicare D prescription drug plans include the dreaded doughnut hole. You fall into it when your total annual drug costs hit a certain amount — $2,830 for 2010 — and you then must pay the next $3,610 out of your own pocket. After you have paid that amount, the insurer will pick up all but 5 percent of the prescriptions it covers; you pay the balance.

To make sure you are not hit with any further surprises, always check to see if the plan you choose covers the drugs you currently need. You can check on Medicare.gov, but it’s also worth calling the insurer directly. “Insurance companies change their list of approved drugs all the time, so it pays to make sure you’re covered, especially if you take certain medicines regularly,” said Seemin Pasha, director of policy and communication at Health Assistance Partnership, the privately financed project of Families USA.

And always check the list of approved pharmacies, Mr. Steinberg advises. “This isn’t such a problem in big cities, but in some rural areas, we’ve seen cases where the only pharmacy is 20 minutes away and it’s not on the approved list.”

This article has been revised to reflect the following correction:

Correction: October 17, 2009
An article on Thursday about sorting through Medicare options described incorrectly the Health Assistance Partnership, an advisory service for the public. It is a privately financed project of Families USA; it is not government-run. The article also referred incorrectly to a fee that Allsup Medicare Advisor charges to help clients navigate the Medicare system. The $200 charge covers a range of services, not a single session. And an accompanying picture caption misstated Paul Gada’s role with Allsup. He is the company’s personal financial planning director, not a financial consultant.