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| New Restrictions On Health Accounts |
Rashida Motiwalla
12/21/2010
This year a tax advantaged health account (such as a flexible spending account, health reimbursement account, health savings account, or medical savings account) can be used to purchase aspirin, flu medications, allergy pills, cold medicines, and other over-the-counter medications.
Effective January 1, 2011, funds from these accounts can no longer be used to purchase over-the-counter drugs unless the taxpayer has a prescription for them. Insulin is an exception and will still be eligible for tax-free reimbursement without a doctor’s prescription.
W-2 reporting of health costs optional for 2011
The IRS and the Treasury are giving employers additional time to adjust payroll systems and procedures to meet the requirement to include the cost of employer-sponsored health coverage on employees’ W-2 forms. This reporting requirement was mandated in the 2010 health care reform legislation and was scheduled to take effect with the issuance of W-2 forms for 2011
Reporting the cost of coverage will be optional for Forms W-2 issued for 2011. Employers who fail to report the cost of health coverage for their employees will not be subject to penalties. The IRS notice included a reminder that the reporting requirement is for informational purposes only. The amount reported on an employee’s W-2 is not taxable income to the employee.
Harvest some losses to lower your 2010 taxes
Consider the following strategy between now and the end of the year to restructure your investment portfolio in a tax-efficient manner.
Taxpayers are allowed to offset capital gains (such as from the sale of stocks) with capital losses. If capital losses exceed capital gains for the year, up to $3,000 of losses can be deducted from other income, such as wages. Any loss greater than that can be carried forward to future years. It’s important to remember that stocks you’ve owned for more than one year (called long-term) must be grouped together for purposes of calculating the capital gain or loss. The same is true for stocks held for one year or less (short-term).
Here’s the strategy. When you identify stocks in your portfolio that have lost value and are no longer worth holding, consider selling those securities and offset all but $3,000 of the loss by also selling stocks that have gained value. This is known as “tax loss harvesting,†and it can be an effective method for rebalancing your portfolio without paying capital gains taxes.
You can often manage the size of your gain or loss when you decide to sell some, but not all, of a particular stock or mutual fund. To do this, you must have kept good records of the date and the price for each share purchase. By selling the highest cost shares first, you’ll minimize your taxable gain or maximize your loss. You must specify the particular shares you are selling at the time you sell.
How does the new financial overhaul law affect you?
So what’s all the fuss over the new financial reform law? The headline-grabbing law raised quite a furor on Wall Street, but what does it mean for you and me? Here is how the law will affect ordinary folk. The biggest change associated with the new law is the creation of a new federal agency, the Consumer Financial Protection Bureau. The mandate of the Bureau is to create and enforce regulations that will protect consumers of financial products much as the government now regulates safe practices for products such as vehicles and food. Areas of enforcement will include credit and debit cards, mortgages, and student loans.
Financial institutions will be required to clearly state the terms of consumer loans and follow strict guidelines designed to ensure that borrowers get a loan they can afford. Deceptive practices, such as hidden interest rate increases, will be illegal. Surprisingly, one important consumer financial product was left untouched. Car loans will not be regulated by the new agency, so “buyer beware†continues when borrowing for a car.
How you use your credit or debit card might also change. Bank overdraft fees will no longer be automatically assessed on debit card transactions. Instead, banks are required to give their customers a choice of accepting overdraft protection – along with the fee charged when overdrawn – or to allow their debit card to be rejected by the retailer when there are insufficient funds in the buyer’s account.
Also, the fee that credit card companies charge retailers to process customer charges will be limited by the Federal Reserve, which might trickle down to savings for consumers on their purchases. On the flip side, retailers have the option to require a minimum debit card charge of up to ten dollars, and using a credit card to pay college expenses may have limits.
Many of the changes in the law are directed to banks’ financial health, hopefully making your bank stronger and safer. The FDIC insurance limit has now been permanently increased to $250,000. Financial institutions must restrict their investment in hedge funds and private equity products. And banks will have to increase their capital reserves, with no institution allowed to become so large that it represents more than 10% of the banking market.
Many of the law’s practical implications have yet to be worked out. So stay tuned for more changes to come.
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