Is an FSA right for you?
If you’re currently going through open enrollment, or you’re a new-hire at a company that offers FSA’s, you’ll want to know what they are and how to use them before you sign up. Depending on the extent of your health costs, an FSA could help you save a lot of money on care- about 30% on average. But if you contribute more than you’ll need to spend on medical care this year, the funds will go away- making for a “use it or lose it” situation.
So, what is an FSA?
Also called a flexible spending arrangement, an FSA can be used for medical expenses, dental expenses and/or vision care. The amount you decide to contribute to the account for the year is deducted from your salary before income taxes or pre-tax. This reduces your taxable income, saving you money on your taxes. For example, if you put aside $2,500 in your medical FSA and are in a 30% tax bracket, you would save $750 in taxes!
How do I decide how much to put into my FFSA?
FSA amounts can be a combination of employee and employer contributions. You will either have a debit card to pay for medical expenses, or you’ll submit receipts for reimbursement. You can use your FSA for your own medical expenses, expenses incurred by your spouse, or any dependents you claim on your taxes. You can also use FSA funds for any adult children on your health plan that will be 26 years old or younger on Dec. 31, 2018. If you typically do not have high medical costs or do not have predictive costs (i.e. regular, monthly prescriptions) then an FSA may not be right for you. However, in most cases, people do have some degree of medical, dental, vision and/or drug expenses that can be partially offset with an FSA.
To decide if an FSA is right for you, try and do an analysis of your medical expenses and feel free to call into our offices to schedule a consultation appointment.
How do I use an FSA?
While you can’t use your FSA for insurance premiums, you can use it for copayments, coinsurance, deductibles, prescription medications, and dental and vision care, according to the IRS. FSAs can also be used toward medical equipment and treatments such as:
· Medicines prescribed by a doctor
· Blood sugar testing supplies
· Acupuncture
· Chiropractor
· Birth control
· Breast pumps
· Pregnancy tests
· Insulin
· Bandages
· Crutches
· Eyeglasses
· Fertility treatment
· Psychological treatment
· Smoking cessation programs
For a complete list of covered treatments and rules, go to this IRA link: https://www.irs.gov/pub/irs-pdf/p502.pdf
How much should I contribute to my FSA annually?
During open enrollment, you decide how much you plan to contribute to your FSA. You can contribute up to $2,650 in 2018, and once you have chosen your amount, you cannot make any changes until your next open enrollment period.
FSAs are “use-or-lose,” meaning the amount in your account will expire at the end of the year. However, employers do have two options to prevent employees from losing any funds remaining at the end of the year: 1) carry over funds, or 2) apply a grace period. The first option lets you carry over up to $500 to the next year. The second option offers a grace period for 2.5 months to spend any leftover funds. Employers can offer either option, but not both. It is important to check your plan summary to see if your employer offer either of these options.
Summary
An FSA can be a great way to save money on health care related expenses. It is important that you read your company’s plan summary so you’re familiar with the rules and restrictions that govern the FSA. Careful planning is necessary in order for the FSA to work properly for you. We will cover Dependent Care FSA’s (DCFSA) in a subsequent post.
As always, if you would like to know more please contact our office at (714) 547-8787 and we will be happy to help you.
Warmly,
This is the first significant reform of the U.S. tax code since 1986. Reagan signed major legislation for corporations and individuals in 1986. Since then, serious tax reform has eluded Republicans, though they repeatedly called for it as the tax code became longer and more arcane.
As the bill becomes law, here are 33 things you should know.
1. The standard deduction has essentially been doubled. Republicans want fewer people to itemize their taxes. To achieve this, they've nearly doubled the standard deduction. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it's increased from $12,700 to $24,000.
2. Changes have been made to both individual and corporate tax rates. Individual provisions in the new legislation technically expire by the end of 2025, though some people expect that a future Congress won't actually let them lapse. Most of the corporate provisions are permanent.
3. There are still seven tax brackets for individuals, but the rates have changed. Americans will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Find out where you fit here.
4. The standard deduction has essentially been doubled. Republicans want fewer people to itemize their taxes. To achieve this, they've nearly doubled
5. The personal exemption is gone. Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. No longer. For some families, the elimination of the personal exemption will reduce or negate the tax relief they get from other parts of the reform package.
6. The state and local tax deduction now has a cap. The state and local tax deduction, or SALT, remains in place for those who itemize their taxes -- but now there's a $10,000 cap. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.
7. The child tax credit has been expanded. The child tax credit has doubled to $2,000 for children under 17. It's also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.
8. There's a new tax credit for non-child dependents, like elderly parents. Taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people adults support, such as children over age 17, elderly parents or adult children with a disability.
9. Fewer people will have to deal with the alternative minimum tax. The alternative minimum tax, a parallel tax system that ensures people who receive a lot of tax breaks still pay some federal income taxes, remains in place for individuals. But fewer people will have to worry about calculating their tax liability under the AMT moving forward. The exemption has been raised to $70,300 for singles, and to $109,400 for married couples.
10. And the mortgage interest deduction has been lowered. Current homeowners are in the clear. But from now on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That's down from $1 million. This is likely to affect people looking for homes in more expensive coastal regions.
11. None of this will affect your 2017 taxes. Americans won't need to worry about these changes when they start filing their 2017 tax returns in about a month. The new laws will first be applied to 2018 taxes.
12. By the way, you can still deduct student loan interest. The deduction for student loan interest, which is up to $2,500 per year, is safe.
13. You can still deduct medical expenses. The deduction for medical expenses wasn't cut. In fact, it's been expanded for two years. In that time, filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income. In the past, the threshold for most Americans was 10% of adjusted gross income.
14. If you're a teacher, you can still deduct classroom supplies. The deduction for teachers who spend their own money on school supplies was left alone. Educators can continue to deduct up to $250 to offset what they spend on classroom materials.
15. The electric car tax credit lives on. Drivers of plug-in electric vehicles can still claim a credit of up to $7,500. Just as before, the full amount is good only on the first 200,000 electric cars sold by each automaker. GM, Nissan and Tesla are expected to reach that number some time next year.
16. Home sellers who turn a profit keep their tax break. Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they're selling their primary home and have lived there for two of the past five years.
17. 529 savings accounts can be used in new ways. In the past, funds invested in 529 savings accounts wasn't taxed -- but it could only be used for college expenses. Now, up to $10,000 can be distributed annually to cover the cost of sending a child to a "public, private or religious elementary or secondary school." This change is a win for Education Secretary Betsy DeVos.
18. And tuition waivers for grad students remain tax-free. Graduate students still won't have to pay income taxes on the tuition waiver they get from their schools. Such waivers are typically awarded to teaching and research assistants.
19. But say goodbye to the tax deduction for alimony payments. Alimony payments, which are codified in divorce agreements and go to the ex-spouse who earns less money, are no longer deductible for the person who writes the checks. This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018.
20. The deduction for moving expenses is also gone ... There may be some exceptions for members of the military. But most people will no longer be able to deduct the cost of their U-Haul when they move for work.
21. As is the tax preparation deduction ...Before tax reform passed, people could deduct the cost of having their taxes prepared by a professional, or the money they spent on tax prep software. That break has been eliminated.
22. The disaster deduction ...Losses sustained due to a fire, storm, shipwreck or theft that aren't covered by insurance used to be deductible, assuming they exceeded 10% of adjusted gross income. But now through 2025, people can only claim that deduction if they've been affected by an official national disaster. That would make someone whose house was destroyed by a California wildfire potentially eligible for some relief, while disqualifying the victim of a random house fire.
23. ... And the reimbursement for bicycle commuters. The tax code used to let you to knock off up to $20 from your income per month for the costs of bicycle commuting to work, assuming you weren't enrolled in a commuter benefit program. That's gone.
24. Almost everyone is now exempt from the estate tax. Before tax reform, few estates were subject to the estate tax, which applies to the transfer of property after someone dies. Now, even fewer people have to deal with it. The amount of money exempt from the tax -- previously set at $5.49 million for individuals, and at $10.98 million for married couples -- has been doubled.
25. Adjustments for inflation will be slower. The new legislation uses "chained CPI" to measure inflation. It's a slower measure than what was used before. Over time, that will raise more money for the federal government, but deductions, credits and exemptions will be worth less.
26. Oh, and the individual mandate on health insurance has been scrapped. Republicans failed to repeal Obamacare earlier this year, but they managed to get rid of one of the health law's key provisions with tax reform. The elimination of the individual mandate, which penalizes people who do not have health care, goes into effect in 2019. The Congressional Budget Office has predicted that as a result, 13 million fewer people will have insurance coverage by 2027, and premiums will go up by about 10% most years.
27. You won't be able to file your tax return on a postcard. Trump said H&R Block would go out of business after tax reform because filing taxes would become so simple. Not quite. While doubling the standard deduction will ease the process for some individuals, there's still a web of deductions and credits to work through. And for small businesses, filing could become even more complicated.
28. The corporate tax rate is coming down. The corporate tax rate has been cut from 35% to 21% starting next year. The alternative minimum tax for corporations has been thrown out altogether. Earnings are expected to go up as a result.
29. Pass-through entities will also get a break. The tax burden by owners, partners and shareholders of S-corporations, LLCs and partnerships -- who pay their share of the business' taxes through their individual tax returns -- has been lowered via a 20% deduction. The legislation includes a rule to ensure owners don't game the system, but tax experts remain concerned about abuse of this provision.
30. By the way, there's a provision to rein in executive pay at nonprofits. The legislation includes a new 21% excise tax on nonprofit employers for salaries they pay out above $1 million. That may mean some well-paid executives at nonprofits take a pay cut.
31. Businesses won't be able to write off sexual harassment settlements. New Jersey Democratic Senator Bob Menendez's amendment born of the #MeToo momentmade it all the way through. Companies can no longer deduct any settlements, payouts or attorney's fees related to sexual harassment if the payments are subject to non-disclosure agreements.
As your partner and insurance expert, we will keep a close eye on any changes and continue to be a resource of information for our clients.
We would enjoy the opportunity to discuss some long-term planning with you.
Contact our office at (714) 547-8787 and we will be happy to help you.
Warmly,
Melissa Levin, The Importance of Reviewing Your Life Insurance Policy
Do you go see your doctor once a year for a check-up? I can promise you that some people are thinking in their heads:
- Yes! Every year
- No! I do not like going to the doctors and I’m very healthy
- Sometimes… if I’m up to it
Have you heard those stories where people look back and wish they would have gone to the doctor? That they would have found the problem sooner – before it hit them?
Well, in a way… life insurance works the same way.
There are MANY people out there that bought a life insurance policy… thinking this policy would last them forever…. And never looked at it again.
Similarly, as with your health… everything may be ok… you may go on with your life and have no problems with your health or insurance plan.
OR… you could be one of those people looking back and wishing you had reviewed your policy.
WHY? Why would you need to review something that is permanent and will pay when you die?
Well… that is not always the case.
There are SEVERAL types of policies out there.. and some are guaranteed to last – but most are not.
They are based on hypothetical investment returns (including fixed returns) and hypothetical expenses. Well, these hypothetical projections do better or worse… they WILL have either a positive or negative impact on our policy.
I have been in the business since 1997. As I reviewed policies over the years, I was able to save people from policies that were going to expire – they had no idea. I was also able to save people money – we are living longer – which means the cost of insurance goes down!!! Why? Prices are based on mortality tables – meaning… when they expect us to die. But since that age has gone up… it means there is more time to pay on these life insurance policies so the prices go down… but not on your current plans.. you have to “refinance”… think of it terms of a fixed rate home loan… when rates decrease… you do not just get the lower rate in your loan – you need to refinance to reap the benefits of decreasing rates.
I urge you to give me a call to for a free review of your life insurance policies. It never hurts to save money or to be aware of where your policy stands. Contact our office at (714) 547-8787 and we will be happy to help you.
Warmly,
Melissa Levin CFP®,
President of Rockstar65
