The 2012 tax filing season may be a thing of the past, but understanding and adjusting to the changes in store for this year are becoming more important. So what’s next? Washington is contemplating more changes; from the introduction of an internet sales tax to a roll back of spending cuts agreed to last year. How will the dust settle? No one is sure. In the meantime, why not review your situation and start taking action to benefit from the rules we now know for 2013.

Ideas to Improve Your Financial Health

No-one likes to be blindsided by financial hardship. Listed here are ten ideas to help ensure your financial health stays healthy.
	Your safety net. Plan to have a minimum savings balance to cover three months of expenses. Ideally this should be six to twelve months. If your reserves are light, start saving now. Even if it is a little amount, it can get you on the right track.
	Budget. At least once a year develop a basic budget. Set goals and try to hit them. If this seems overwhelming, start simple. What is coming in and what goes out each month? Becoming aware is the first step to improving your financial health.
	Spouse as financial partner. If you die, does your significant other know where everything is? Can he/she pay the bills? Does he know where account numbers are? Does your spouse know who you use to help with things? If not, it is time to start talking.
	Review beneficiaries. Once a year review beneficiaries on all accounts. This includes retirement accounts as well as names on wills and estate plans. The legal hassle created without this review can be devastating to your surviving family. This is especially important if you had a recent life event (marriage, divorce, birth, or death).
	Maximize benefits. Make sure you review your retirement plans for maximizing any employer match in your account. Also review your plan’s administrative expenses. If they are too high they can cost you 10s of thousands of dollars over your lifetime.
	Disaster plan. If your home burned down or was flooded are your important records easily accessible and protected? If not consider creating a disaster plan, including placing important documents in a safe deposit box.
	Credit report review. With the recent increase in identity fraud, plan to check your credit with the major credit agencies once a year. The agencies are legally required to make their report available to you annually without charge.
	Insurance review. Periodically look at your health, life, home, and liability insurance. With the legal nature of our society you might consider the need for an umbrella policy to cover against potential litigation. But also consider flood insurance and a replacement value homeowner’s policy.
	Debt wrestling. Review your use of debt instruments. Understand your net worth (assets minus liabilities). Make progress in reducing your debt load starting with the highest interest obligations first. Is your debt lower than it was last year?
	Plan for fun. It is easy to make a simple financial mistake that can cost you plenty. But while on the path of financial improvement, don’t forget to smell the roses. Just do it in a financially healthy manner.

This list is by no means complete, but if you focus on the areas mentioned, your financial life will become more planned and less likely to be struck by an unforeseen surprise.

Is it Coming? The Online Sales Tax

The Marketplace Fairness Act is working its way through Congress and could dramatically impact the collection of sales tax on all internet purchases. If passed, the federal government will empower states to make online merchants collect and remit sales tax. Here is what you need to know. Why now?
	States are begging for more tax revenue. Many states have not recovered from the recession of 2008 and are in dire need to balance their budgets.
	It is already law. Sales taxes are already required by most states on internet purchases. The taxes are simply not being sent in by the people making the purchases. The argument is that an internet sales tax is not a new tax, it is simply requiring small businesses to help their customers comply with state law.
	Big box retailers gripe. Big brick and mortar retailers think online companies have a cost advantage by not collecting sales tax.
	Even Amazon likes it. After years of fighting, it appears even Amazon is willing to accept the tax. Amazon currently collects sales taxes in approximately ½ of the states already.
	Showrooming and retailer protection. Many customers go into local retailers to see the product they wish to buy, then go online to purchase the item for a lower price, and avoid paying sales tax. This practice has hurt many traditional retailers.

What’s in the bill?

If passed in its current form, states would be allowed to require the collection of sales tax for any online sales. To help ease the burden on businesses the states would be required to provide free software to collect the tax. Business’ with less than $1 million in online sales would be exempt.

The Arguments Against

	New Hampshire, Montana and Oregon hate it. States that currently have no sales tax do not like other states auditing and taking legal action against their small business community. Nor do they want to create software to comply with the federal law that sends money to other states.
	Small business burden. The major problem for small businesses with online sales taxes is the undue complexity in each state’s laws. The current bill does not simplify this process by making one unified online sales tax rate. A look at Minnesota sales tax law illustrates this problem: MN taxes some items but not others…retailers must tax goods sold, but not services. There is no tax on food or clothing. An online retailer would need to know what items it sells should be taxed if the customer is in Minnesota. The Minnesota tax rate varies from county to county. Some Minnesota cities also impose their own sales tax. The result? Every small business needs to keep track of complex sales tax laws in all 50 states.
	Not all states will have the requirement. Online retailers would need to know which states have an internet sales tax collection law and which do not. Some states, like California, already have one in place.

Many have suggested a more manageable approach would be a uniform single online sales tax rate that is collected centrally and then distributed by the Federal government to each state. This removes the burden of compliance complexity from the business community. The likelihood of this approach is currently remote as most states have their own agendas.

Does it Pay to be Noticed?

If you receive a notice from the IRS most of us will see our pulse rate quicken and a cold sweat break out on our foreheads. Here is some advice if an IRS notice finds its way into your mailbox.
	Open it. You would be surprised how many people simply cannot find the courage to open a letter from the IRS. It can be intimidating. Try to remember the IRS sends out millions of these every year.
	Most notices are produced by computer programs. Most IRS notices are driven by a request for clarification. Things like a name mismatch or a missing 1099 or W-2 can be easily corrected.
	Follow the instructions. The letter will tell you what to do and when to do it. Follow these instructions.
	Changes to your return. Often the IRS will make a proposed change to your tax return and will ask you to confirm the change. If you agree with the change you often need to do nothing. If not, you must formalize your disagreement.
	Ask for help. Do not assume you know the answer. Ask for a review of the correspondence as soon as possible.
	Certify your response. Any written response to your IRS notice should be sent by certified mail. If the IRS later says you did not respond, this certification can be used to defend your timely response to their notice.
	Fraud is possible. Remember the IRS does not correspond via email. Do not give personal information to anyone representing themselves as the IRS without independent verification. This is especially important on telephone calls. How do you do this? Independently confirm mailing addresses and initiate phone calls to the IRS through information on their www.irs.gov website.
	Use alternatives. If you cannot seem to get resolution to your notice via mail, consider calling or visiting a local IRS office. But only do so with proper representation.

Annual Retirement Savings Contributions are Up 2013 marks one of the first years in many that the annual contribution limits to most of the common retirement savings plans has increased. If you have not already done so, please review your accounts and make the necessary adjustments to take full advantage of these new, higher, limits. Retirement Program Current Year 2013 Last Year 2012 Change Age 50 or over catch up IRA: Traditional $5,500 $5,000 +$500 add: $1,000 IRA: Roth $5,500 $5,000 +$500 add: $1,000 IRA: Simple $12,000 $11,500 +$500 add: $2,500 401(k), 403(b), 457 plans $17,500 $17,000 +$500 add: $5,500

As always, should you have any questions or concerns regarding your situation please feel free to call.

Happy tax filing month. To help celebrate, this month’s newsletter includes a fun tax quiz. In addition, there are articles outlining recent credit card changes and IRS tax collection updates.

2013 Income Tax Quiz

How well do you know tax facts?

As April is tax month, included here is a short quiz to see how well you know your taxes. Enjoy!
	Match the highest (nominal) federal income tax rate with the correct tax year. 70% 2013 50% 1990 40.5% 1983 28% 1970 7% 1913
	70% – 1970; 50% – 1983; 40.5% – 2013; 28% – 1990; 7% – 1913. While available deductions varied greatly over these same tax years, there is little doubt when comparing the 7% marginal tax rate applied to incomes over $500,000 in 1913 that income tax rates are much higher today. Note: The tax rate noted for 2013 is 39.6% plus a .9% surtax to help pay for health care legislation.
	If you steal someone’s property do you owe tax on it?
	Yes, according to the IRS. But don’t expect the person whose property was stolen to issue you a Form 1099. Tax instructions tell you to list this as “stolen property” on your tax return. Perhaps listing it as “other income” might be a better idea as it does not lead to self-incrimination.
	Which famous personalities have crossed paths with the IRS and lost? Pete Rose (baseball player) Nicolas Cage (actor) Willie Nelson (singer) Wesley Snipes (actor) All of the above
	All of the above. While each case was different, all the above celebrities ended up owing significant amounts in back taxes; Pete Rose, for failing to report income from autograph signings, Willie Nelson, for having tax shelters disallowed, Wesley Snipes, for failing to file tax returns while taking a position that federal taxes were unconstitutional and Nicolas Cage who settled part of his tax bill for over $6 million.
	State tax law can also take the oddest twists. Match the state with the unique tax positions they have taken now or in the past: 1. will tax hiking boots, but not cowboy boots 2. will tax disposable diapers, but not cloth diapers 3. has a tax credit for double amputees 4. allows an anonymous tax on illegal substances sold 5. allows a $50 deduction for a dead deer donation to the poor 6. places a tax on fresh fruit purchased from a vending machine, but not fruit purchased at a retailer 7. has an odd pumpkin tax; pumpkin purchased to eat? no tax; carve it? then taxed A. California B. Oregon C. South Carolina D. Texas E. Tennessee F. Iowa/Pennsylvania/New Jersey G. Wisconsin
	1-D, 2-G, 3-B, 4-E, 5-C, 6-A, 7-F. The moral of the story? Logic does not drive tax laws, legislatures do.

The Interchange Change

Retailers and other Merchants have long been plagued by increasing costs associated with taking credit card payments without reasonable control over the expense of those payments. There is now a proposed settlement in a long-standing price fixing lawsuit between Visa/Mastercard and retailers that may change the playing field. Here is what you need to know.

Background

Retailers and “merchants” of all sorts that accept credit cards as a form of payment have to pay an interchange fee every time a credit card is used to pay for purchases. This fee varies, but can be as much as 3 – 5% of the transaction cost. Larger merchants, like Target and Walmart, can often negotiate a lower fee. The interchange collected is then split between many providers including; the card issuing bank, the credit card company, the merchant’s bank, the credit card gateway provider, and any other distributors.

The Problem

The merchants in this system are often powerless at controlling their costs. Why?

	Merchants cannot differentiate. If they accept a card, like Visa, they cannot charge you any extra for using the card. So if a customer who pays with a Visa costs a merchant 2% more than someone who writes a check, the merchant cannot pass that additional cost on to the customer.
	Prices are not fluid. Banks are the historic owners of Visa and Mastercard, and the pricing models used are very inflexible. In other words, according to many merchants, the credit card pricing is fixed between providers.
	Losses flow downhill. If there is a problem with the credit card transaction, often the merchant is the one taking the loss. Why? The credit card banks have auto access to the merchant’s bank account and if a disputed claim is ruled against them, there is little practical recourse other than to accept the loss.
	Rewards cards become penalty cards to merchants. If you use a credit card with a rewards program, the merchant is the one who foots the extra cost. Theoretically, two customers could use the same type of credit card (Visa, Mastercard, American Express), but the credit card cost to the merchant can vary depending on the reward program attached to the card.

What is Happening Now

In a recent class action lawsuit, merchants have challenged Visa/Mastercard over their business practices claiming price fixing. The merchants wish to recapture some of their pricing authority. If the proposed settlement is accepted:

	Participating Merchants will share in a $6+ billion settlement payment.
	Merchants will be able to add a fee if you use a Visa or Mastercard to pay your bill, as long as you are located in a state that does not prohibit a credit card surcharge.
	Merchants will see a .10% drop in their credit card rate for a 6 – 9 month period of time.

Why Care?

Ultimately, merchants must pass the cost of these credit cards on to the consumer. Here are some ideas to use this information to your benefit:

	Negotiate cost. If purchasing an expensive item, offer to pay cash for a discount. If it is a small merchant you might suggest a 1 – 3% discount to share in the interchange savings.
	Be aware of surcharges. Given the nature of the settlement, it is unlikely that large retailers will be adding credit card surcharges, but smaller retailers might do so. Please be aware of the store’s policy before you buy.
	Leverage your credit card costs. Being aware of the interchange profits being made on your credit card provides you negotiating leverage on your credit card bill. Remember, your bank is making money every time you use your card, even if you pay your bill in full each month. Consider challenging a late fee or credit card interest on a late payment.

The IRS Collects $2.2 Trillion in 2012

Each year the IRS releases a Data Book that recaps Internal Revenue Service activities for the prior fiscal year ending in September. The 2012 Data Book was recently published which recaps the 2011 tax year. Here is what you need to know:

The $2.2 trillion in gross revenue collected was up 4.3% from the prior year $1.3 trillion of the revenue collected came from individual income tax returns 2 million notices were sent out involving 2.7 million math errors on tax returns Approximately 1% of all individual tax returns were audited Automated programs yielded over $13 billion in additional tax assessments Of specific interest was the data that recapped two of the major automatic programs in place at the IRS; the Automated Under Reporter Program and the Automated Substitute for Return Program. Automated Under Reporter Program Description: This is the IRS computer program that compares information returns (W-2s and 1099s) provided by third parties with the information provided by taxpayers on their tax return. If there is a mis-match, the program automatically sends out a form to have you explain the difference.

	Results: The 2.2 billion information returns received by the IRS identified 4.5 million discrepancies resulting in $7.1 billion additional tax assessments.
	Action: This program is an efficient way for the IRS to find missing revenue. Make sure you receive all your information forms and that the information stated on them is correct. Errors can be corrected on your tax return, but it is always best to get your employer or provider (bank, brokerage or customer) to issue a corrected 1099 or W-2 form.

Automated Substitute for Return Program

	Description: This is the IRS computer program that uses third party information and automatically creates a tax return with that information if you do not file one.
	Results: This program identified 803 thousand non-filed tax returns. The created returns yielded an additional $6.7 billion in tax assessments.
	Action: If 1099s or W-2s have been issued, the IRS expects you to file a tax return or will do it for you if you don’t. While it is possible that this might create a refund, do not expect the IRS to grant you all your available deductions. It is always best to file a return, or file an extension if needed to provide some time to get your information to them.

The IRS Data Book is loaded with useful information. Next month: What is your chance of being Audited? A look at updated IRS audit information.

As always, should you have any questions or concerns regarding your situation please feel free to call.

hile much of the IRS tax-filing logjam caused by the late passage of tax laws on January 1st is now behind us, the bottleneck of tax return processing will be with us through April 15th. The last major filing delays relating to business credits and depreciation should be ready to go by mid-March. This month’s letter focuses on tax increases for lower and upper income taxpayers and discusses the hot phenomenon known as Snapchat.

High Income Tax Increases? Done

Think our friends in Washington aren’t accomplishing much? One of the tax policy objectives of the current Administration is to increase the income taxes received from upper income citizens. On this front, there is a high degree of success. The following tax increases have been put in place in 2013 for those with incomes over $200,000:

		Impacts Incomes Over:
		Single	Married
1	.9% Medicare surtax	$200,000	$250,000
2	3.8% Investment surtax	$200,000	$250,000
3	80% of itemized deduction elimination	$250,000	$300,000
4	Elimination of tax exemptions	$250,000	$300,000
5	5% dividend tax increase (15 to 20%)	$400,000	$450,000
6	5% capital gain tax increase (15 to 20%)	$400,000	$450,000
7	New 39.6% income tax rate (from 35%)	$400,000	$450,000

What you should know

	In 2009, (most recent data available) the top 10% of reported income paid 70.5% of personal income taxes. This equated to those with adjusted gross incomes (AGI) of $113,000 and greater. The top 1% reported AGI paid 37% of the personal income taxes and had adjusted gross income of $334,000 or more.
	If you have income above the levels noted above, your personal income taxes could be going up substantially. You will need to forecast this additional obligation early in the year to avoid any surprises in withholdings and year-end tax obligations.
	Approximately ½ of those impacted by these changes will be small businesses because many corporations are taxed at the individual level (partnerships and S-Corporations). Prior to making any new investments in your business (including new hires) you will want to ensure your change in tax obligation does not create a cash flow problem.
	Watch your state. Many states, like Minnesota, are also looking to increase tax revenues on this same segment. Be aware of this phenomenon in your state and plan accordingly.
	The impact will vary. The tax impact on your situation could vary dramatically depending on your filing status and the mix of your income and deductions. The only sure way to ensure there are no surprises is to conduct a full year tax forecast for 2013.

Secret Poor Tax: The Lottery

For every $10 of your earnings, as little as $2.00 to 2.50 might ever reach the pocket of a lottery winner

Often, only 60-65% of lottery ticket sales are paid out as winnings

States often receive money three ways when you buy lottery tickets

Most everyone enjoys dreaming of winning it big in the lottery. News media outlets publicize the large unclaimed pots of money on the evening news and they put a spotlight on the lucky multi-million dollar winners. Little do most people realize that the Federal and State Governments are quietly using this gambling device to double and triple tax those who can least afford it: the poor and lower middle class.

Why do we tolerate this?

A single lottery ticket does not cost a lot. The lucky winner is the one who pays the extra tax on everyone’s behalf, but they don’t care because the pot is so large. So by taxing us in small stages and by shifting who pays the tax on lottery winnings, a wonderful re-taxing formula has quietly emerged for state and federal taxing authorities. Put another way, if you were told to voluntarily pay 75% of your wages to government-sponsored programs for the rare chance of getting everyone else’s remaining 25% would you do it?

What to do?

If you think the funds being scooped up by the government is ethically wrong what can you do about it?

	Stop buying tickets. If the lottery no longer generates sales, the programs would be discontinued.
	Pressure legislatures. Why aren’t lottery winnings taxed at a lower rate? Shouldn’t the government acknowledge they’ve already received tax on this income? We have lower tax rates on dividends and capital gains so why not on lottery winnings? If you agree, send a letter to your representative asking that lottery winnings be capped at the lowest income tax rate or a special rate for lottery winnings.
	Tell everyone you know. If you think the double and triple taxing of income through lotteries is not right, make everyone you know aware of this tax trick. The more that know, the more likely something will change.
	Tax planning. If you win the lottery, consider taking the annuity option and then move to a no income tax state. You won’t save in Federal taxes, but it should save on some of the ongoing state tax obligation.

Playing the lottery is fun. Dreaming of being rich is nice. Having our government promote these things as an opportunity to re-tax its everyday citizens is at best a questionable practice.

The Snapchat Phenomenon

Temporary texting application is making a big splash

If you are under the age of 25, Snapchat and its little ghost logo are common everyday items in your life. If not, you might just be wondering what this social media application is all about.

Background

A couple of Stanford students developed an application a few years ago that allows users to take a photo or video, add a caption, and then text it to a group of friends. What makes the free application unique is that the text may only be viewed for up to ten seconds, after which the image/video is automatically deleted. This allows users to send spontaneous photos and videos to their friends without the virtual legacy sitting out there for all to see. This Apple and Android application is now so popular that the Snapchat folks are sending 50 million Snapchats per day!

What You Need to Know

	Cyber bullies? Because the image and video are automatically deleted, there is the chance that more revealing photos will be sent without them going global. So Snapchatting is opening the door to risky behavior not normally seen in other social media tools like Facebook.
	Is the visual REALLY temporary? One of the popular aspects of Snapchat is the auto delete of that embarrassing text image. But they can be captured. Many have found a way to make a screen shot of the Snapchat and then have a permanent record of your embarrassing moment. While the application supposedly notifies you when a screen shot happens, all that does is tell you who distributed your image. It does not stop it from happening.
	There are no guarantees. Snapchat is very clear that it takes no responsibility for the distribution of your image/video. Bad stuff happens and they want you to clearly understand that it can.
	Parental controls? If you cannot see what your child is Snapchatting do you know how your child is using the free application? You really don’t. And since Snapchat allows users age 13 and older to use their application it can create an unmanageable environment for young users. At minimum, if you allow your child to use the application, you should require your child to copy you on all their outgoing Snapchats. Also consider the promise of random checking your child’s phone for Snapchat content. Your child will let friends know this is a possibility and this may limit how friends use the application with your child.
	The illusion of security. Perhaps the most dangerous aspect of Snapchats is the illusion of security on a social network. There is none. The best lesson for your kids is if you send something digitially you MUST assume anyone can see it. At minimum they do not know who else might be watching when the Snapchat is opened….perhaps by a teacher or by a whole group of unwanted “friends” at a party.

The bottom line on Snapchatting? Cool, but dangerous.

Where’s My Refund? 2013 Edition “Where’s my Refund?” This popular feature on the IRS web site (www.irs.gov) allows you to see the status of your refund after filing your income tax return. Since the IRS only started processing tax returns after January 30th and did not start accepting tax returns with educational credits or adoption credits until late in February, when can you expect to see your refund? Per the IRS, 9 out of 10 refunds are being processed within 21 days. If you wish to check on the status of your refund this is what you should know: When to check: 72 hours after an e-filed tax return confirmation 4 weeks after a mailed tax return is sent What you need to provide: Social Security number Filing Status EXACT refund amount How often to check? Once a day. The IRS only updates the status of your return once a day, usually overnight. This is important because too many refund status requests can limit your ability to access this feature on the IRS web site. Some returns will be delayed. If your tax return has errors in it, it will be delayed. In addition, your tax return could be delayed if it has items on it that are not ready to be processed due to late tax law changes. This includes tax returns with the following information: Depreciation Energy Credits General Business Credits But perhaps most importantly, the IRS may delay processing your refund if it has questions, often to ensure you are not being subject to identity fraud. To check on your status simply logon to www.irs.gov and click on the link on the top center portion of the IRS home page.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Last year’s intense last minute debate out of Washington focused on an extension of the Social Security tax cut into 2012. Would this year be any more calm? Would 2012 tax laws be locked in place before the end of the tax year? What is going to happen to tax laws in 2013?

Long gone are the days when taxes were a simple calculation to ensure there was enough revenue to cover the desired federal programs. Now it seems each section of the code is a political and/or social statement. While our leaders continue to grapple with answers, here are some things to consider to make your situation a little better.

Check Your 2013 Pay Stub

As you buckle down and try to make plans to accomplish your 2013 resolutions, don’t forget to conduct an annual review of your paycheck. Given the uncertainty of 2013 tax laws, you may need to prepare yourself to conduct this review on numerous occasions throughout the year. Here are some items to review: Conduct a Social Security tax calculation. It should return to 6.2% of your pay. This is an increase of 2% from 2012. Review insurance withholdings. Many employers adjust the amount you pay for your benefits at the start of each year. Check to make sure the proper amount is being withheld. Is anything missing? If you signed up for a Health Care Savings account, Dependent Care, or other elective benefits please make sure they are noted on your pay stub.

	Retirement Plans. Also check to ensure contributions for any employer provided retirement plans are properly noted. If there is an employer contribution to your plan, make sure this is noted as well.
	Update your withholdings. Make sure you have enough being withheld for Federal and State tax purposes. File a new W-4 with your employer if you have not already done so.

The biggest change beginning in 2013 may be the 2% reduction in your take-home pay because of the reset in Social Security taxes. Adjust your spending to ensure you cover this drop in available income. But please remember when Congress reconvenes in early 2013, they are sure to continue discussing extending tax benefits throughout calendar year 2013.

Breaking News: The AMT Patch Gets Permanently Mended

The Alternative Minimum Tax (AMT) is a classic example of the problem we face when Washington D.C. passes temporary tax legislation. For the past ten plus years, our legislators have passed bills that extend a patch to this parallel income tax calculation within our tax code. In the wee hours of January 1st, 2013 a permanent fix to the AMT was passed by Congress. This change impacts 2012 tax returns.

Background of AMT

The AMT is a separate income tax calculation that adds back several common deductions to your taxable income AND then applies a separate tax rate to this adjusted income. You must pay either your normal income tax OR the AMT tax, whichever is higher. The AMT calculation was originally intended to ensure the wealthiest Americans pay a minimum percent of income in federal taxes. But over time, because it is not adjusted for inflation, the AMT has come to snare middle-income taxpayers. Ironically, the wealthiest are no longer impacted by AMT as normal income tax rates are higher than the AMT rates of 26% or 28%. Without the Congressional action on January 1st it was estimated that over 20 million more people would be subject to the AMT in 2012.

What is happening now?

Rather than overhaul the Alternative Minimum Tax, Congress typically elects to raise the exemption level each year to keep the vast middle class from being impacted. The bill being signed into law does two things:

1. It raises the AMT exemption amounts retroactively for 2012. This effectively patches the tax code and keeps the tax surprise from hitting the 20+ million additional taxpayers.
2. It makes the patch permanent and the exemption thresholds are automatically adjusted for inflation.

NEW 2012 Law

Filing Status	Single/HOH	Married/Joint	Married Separate
AMT exemption	$50,600	$78,750	$39,375
Income phase-out	112,500-314,900	150,000-465,000	75,000-232,500

Old Law (2011-2012)

	2011			2012
Filing status	Single/HOH	Married/Joint	Married/Sep.	Single/HOH	Married/Joint	Married/Sep.
Exemption	$48,450	$74,450	$37,225	$33,750	$45,000	$22,500
Income phase-out	112,500 – 306,300	150,000 – 447,800	75,000 – 223,900	112,500 – 247,500	150,000 – 330,000	75,000 – 165,000

 

	The Exemption amounts are a level of income that is excluded from the AMT calculation. Amounts above the exemption are subject to a static 26% AMT tax rate. AMT adjusted income in excess of $175,000 is subject to a flat 28%.
	Notice there is a significant Marriage penalty in the AMT calculation.
	The top marginal income tax rate in 2012 is 35%. This rate is going to 39.6% in 2013. That is why the AMT no longer impacts most wealthy taxpayers.
	Some of the main add-backs to your regular income for the separate AMT calculation are: state & local taxes paid, mortgage interest on home equity debt, miscellaneous expenses, medical expenses, net operating loses and investment expenses.

What does this mean?

Millions of Americans can breathe a collective sigh of relief that the AMT tax surprise will not be a surprise to them when filing their taxes this year.

Do You Have Your Health Insurance?

Time to be thinking about health insurance

The health care legislation commonly known as Obama Care has many provisions that are being implemented over a number of years. As we start 2013, it is wise to once again review the major changes impacting individuals for this year and next.

2013

• Income for those earning more than $200,000 unmarried or $250,000 married filing joint will be subject to a .9% additional Medicare tax. The normal 1.45% employee Medicare tax will increase to 2.35%.
• In addition, if you have unearned income above the $200,000 single ($250,000 married filing joint) it could be subject to a 3.8% Medicare tax. Unearned income includes dividends, annuities, rent, royalties, interest and many capital gains.

2014
Everyone will be required to have health insurance. If you do not, you will be subject to a tax penalty. The penalty will commence on January 1, 2014. The initial penalty will be $95 per individual, $285 per family or 1% of your income whichever is greater. There is also a potential penalty to employers who fail to offer employees health care insurance.

Here is what you should know.

Additional Medicare Taxes

	How does your employer know? It is very possible that neither you nor your spouse will individually surpass the payroll threshold of $250,000 to have your employer pull out the additional tax for Medicare. But added together you may need to pay this new tax. If this happens to you, be prepared to pay additional Mediare tax on next year’s 1040.
	Late payment penalties? In all likelihood there will not be penalties for under withholding to account for this additional Medicare tax. If you are concerned, consider adjusting your payroll withholdings to account for this tax change.

Health Care Requirement

	Every state is required to have an insurance exchange. This exchange is to be a place where everyone can view health insurance options. It will allow individuals and small businesses a place to compare and shop for qualified insurance programs.
	No pre-existing condition limitation. You can no longer be refused insurance coverage because of a pre-existing condition or be charged an incremental premium based on health or gender.
	Buy or pay the penalty? Hopefully, not many will be faced with this dilemma. Why? Part of the health insurance bill is the requirement for most small businesses to offer a qualified health insurance plan. There are other exceptions to the penalty. If you have to spend more than 8% of your household income on the cheapest health care insurance premiums there is no penalty. There will be subsidies if you cannot afford health care insurance. This will be in the form of an advance tax credit if your household income is between 100 and 400 percent of the federal poverty level.
	Start looking now. If you will need to get health care insurance or face a fine, shop for alternatives as soon as possible. With proper planning you should be able to avoid the unpleasant task of facing a tax penalty in 2014.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Making for a Financially Sane Holiday

For the past 27 years the American Research Group has conducted interviews with Americans to assess planned holiday spending. This year, the average amount of estimated spending for holiday gifts is $854, up a whopping 32% versus last year! They also found: 40% plan to purchase from catalogs (direct marketers) 45% plan to purchase from the internet 54% plan to wait for sales 40% already started shopping by November 14th So are you like these fellow Americans? What can you do to ensure your spending does not spiral out of control? Here are some ideas.

	Set a limit. Decide what you can afford to spend and stick to it. Perhaps you can provide an incentive for yourself with any amounts you save under your spending limit.
	Do the Santa thing. Perhaps Santa got it right when he “makes a list and checks it twice.” Your list can be your working tool to try to stay on budget.
	Avoid the impulse. A side benefit of making the list is to tie your budget to the items on your list. This matching of budget and list will ensure your spending goal is attainable.
	Leave the plastic behind. A simple spending control idea is to go to the stores with the funds you are willing to spend. So consider leaving the credit cards at home. Remember your gifts are for family and friends….not the shareholders of some large bank earning interest paid by you.
	Compare, compare, compare. The internet is a great tool to find the right item at the right price. Even if you don’t plan to buy the item over the internet, you can shop different retail locations without making the drive. If you do make an internet purchase, don’t forget to factor in shipping costs.
	Consider something other than “things.” One of the best gifts today is the gift of time. Perhaps it is babysitting or doing chores for a friend. Consider a hand-made craft or edible goodie. The gift of love is too often replaced by merchandise from a store.
	Save to spend. While it may be too late for this year, consider setting next year’s budget based on this year’s experience. Then set up a special savings account for next year and start funding it. This can readily reduce your spending stress next year.
	Do the Santa thing II. One of the nicest gifts one can give is to reintroduce the “giving” nature of Santa. The mall Santa has long lost this idea in place of getting your little one to tell Santa what gifts they want to “get.” Consider purchasing a gift for Toy-for-Tots or other charity and then have your child/grandchild give the gift to the mall Santa for delivery. This little idea can plant the seed for our future generation that consumption should not be the central theme of the holidays. Plus your little one has the joy of knowing they personally helped Santa!

Year-end Tax Moves

More important than ever

Costco recently announces a special $7 per share dividend payable in December Legendary basketball coach Bob Knight sells his NCAA championship rings

These are just two examples of moves that are occurring because of imminent changes in the tax code that will occur at the end of this month. While Congress wrestles with what they will do, the rest of us are running out of time to take action prior to yearend. While the tax code changes are vast, a few of them require immediate planning. 1. Dividends are getting a tax increase. A big tax increase. They will go from capital gains tax rates (0 to 15%) to ordinary income tax rates (10% to 39.6%). Plus there is a potential bonus Medicare tax of 3.8% if your income exceeds $200,000 single and $250,000 married. Action to take:

If you are a shareholder in a small C corporation, consider taking dividends now. It could save a tremendous amount of federal tax versus 2013 and beyond.

2. Capital Gains tax rates are increasing as well. The maximum long-term capital gains tax rates are scheduled to increase 33% from 15% to 20% unless Congress acts.

Action to take:

	Review your portfolio and consider the appropriateness of taking long-term gains now versus holding the investment. Remember in 2013, these gains might be subject to the 3.8% Medicare surtax as well.
	Consider the possibility of delaying capital losses. These losses can offset capital gains. If capital gains tax rates go up, then the value of these loses next month improves when netted against higher taxed gains.

3. Last minute charitable donations. Now is the time to finalize your charitable donations. Remember you must always have a receipt (cash donations are no longer deductible without one) and only donate non-cash items in good or better condition. Donations of $250 or more also require an acknowledgement from the charitable organization. Also important, in 2013 these same charitable contributions could be subject to itemized deduction phase-out rules for higher income earners.

Action to take:

	Make any last minute donations and collect all applicable receipts.
	Consider making donations this year versus next if your itemized deductions were ever phased out in the past.

4. Don’t forget the year-end “basics.” Just because there is tremendous uncertainty in the tax code, don’t forego the normal discipline of review prior to December 31st. Spend a minute going over the following list.

Action to take now

	Take your Required Minimum Distribution from retirement accounts if over the age of 70 ½.
	Rebalance your investment portfolios as necessary
	Review any medical and dependent care spending accounts to ensure you do not lose any unspent funds
	Make contributions to your retirement savings accounts, especially if you are self-employed
	Consider last minute retirement conversions if appropriate
	Consider donating appreciated stock versus writing a check to a favorite charity
	Estimate your tax liability and make any required estimated tax payments
	Make any final gift payments while being aware of the annual gift giving limits
	Start collecting and organizing your tax records

While there are many scheduled changes and much uncertainty, none of us has a crystal ball. Hopefully, Congress will act to help provide clarity sooner versus later. In the meantime, should you have any questions or concerns please feel free to call.

A Charitable Giving Surprise

You may be creating a junk mail bonanza

As year-end approaches the mailbox begins to fill with last minute appeals from various charities. Little did you realize that much of these last minute appeals are the harvest of seeds you planted much earlier.

What is happening?

Charitable organizations are usually exempt from junk mail and unwanted solicitation laws. When you donate money to a charitable organization, they generally resell your information to other non-profits to allow them to solicit to you as well. You soon become an “easy mark,” not unlike the technique used by hobos to mark a building of someone willing to give a hand out.What can you do?

So how does a bleeding heart avoid being bled to death? Here are some suggestions.

	Be selective. Create a budget and limit your target list of worthy charities. Say no to anyone not on your list this year. This will dramatically decrease your junk mail and unwanted emails/phone calls.
	Give to Quality. There are a number of web sites that rank charities for their quality and effective use of donations. Here are a couple of the more popular: CharityWatch Charity Rating Guide www.charitywatch.org and www.charitynavigator.org.
	Opt out. When you send a check or other donation, request that your name not be resold or given to any other organizations. Most charities will honor your request.
	Create a blind mark. Want to know which charities are the worst junk proliferators? Blind mark your name with a fake middle initial or surname. Keep track of who you gave the blind mark to and then you’ll know which charities are renting your name based on seeing this code on future solicitations.
	Contact your current charities. Tell them to stop sending you correspondence. Tell them they will still get their money and they can save on mailing expenses. If the charity ignores your request, warn them that perhaps a more efficient charity can make better use of your giving.
	Reduce the appeals.While non-profits are exempt from using “do not call” and “do not mail” lists, many do adhere to the requests. Here are some of the major resources to help reduce the solicitations. National “Do Not Call” list. www.donotcall.gov Contact DMA (Direct Marketing Association) Mail Preference Service Direct Marketing Association; PO Box 643, Carmel, NY 10512 OR for telemarketing: Telephone Preference Service Direct Marketing Association, PO Box 1559, Carmel, NY 10512
	Be mindful of fraud. Never give money over the phone. Get information about the organization, conduct your own research, and then give a donation. Often phone donations are less efficient for the non-profit because the telemarketing firm takes a percentage of the amount you give.
	Get their name technique. When an unsolicited telephone call or junk mail is received, tell the organization to take you off their list. But thank them, because you only had a small amount left available to give to a few charities and by receiving their unsolicited marketing you can now eliminate them from your giving list this year.

There is a tale about a little girl on a beach full of thousands upon thousands of trapped and floundering minnows. An old gentleman approaches the little girl and says, “What are you doing? You can’t possibly save all these minnows!” “You’re right,” the little girl says as she throws another minnow back in the water, “but I sure made a difference for that one.”

By taking control of your giving you not only reduce unwanted solicitations, your money will also be more efficiently spent on causes you care about.

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.This email includes, or may include, links to third party Internet Web sites controlled and maintained by others. When accessing these links the user leaves this email. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does R.D.M. Tax Service & Notary Public have any control over, or responsibility for, the content of any such Websites. All rights reserved.

he Social Security Administration recently announced a 1.7% increase in benefits for 2013. Unfortunately, this news will be tempered until Medicare insurance premiums for 2013 are announced next month. In the meantime you still need to prepare for the planned end of the temporary 2% drop in the employee portion of Social Security tax. Outlined in this issue is a recap of the recent Social Security announcements, an update on the states’ sales tax burden, and other useful information.

State and Local Tax Burdens Announced

Where does your state rank?

Each year the Tax Foundation announces the results of its State and Local Tax Burden study. The results are an estimate of the tax burden paid by residents of each state. Here are the findings:

Sources: Tax Foundation calculations using data from multiple sources, primarily Census Bureau, Rockefeller Institute, Bureau of Economic Analysis, Council on State Taxation, and Travel Industry Association.

Notes: As a unique state-local entity, D.C. is not included in rankings, but the figure in parentheses shows where it would rank. The local portions of tax collection figures for fiscal year 2010 rely on projections of local government tax revenue.

Some Observations

	Ironically, a number of states with low sales tax burdens are also states with no individual income taxes. This includes Texas, Alaska, Wyoming and South Dakota.
	A number of states receive much of their revenue from non-residents. This includes Alaska (oil extraction revenues), Florida (tourism) and Nevada (tourism). It also includes states where mining is a primary activity. This lowers the effective tax burden for residents within each of these states.
	The range of burden varies dramatically from a low of 7.0% in Alaska to a high of 12.8% in New York.
	This information can be helpful in understanding the cost of living in an area, but should be taken in conjunction with other factors that are important to you such as health care, income taxes, safety, and the environment.

Want to learn more? The full study is available at www.taxfoundation.org

Social Security Benefits set for 2013

Social Security Benefits have been set for 2013 with the release of the September 2012 Consumer Price Index. The benefit increase will be 1.7% above the 2012 levels. While Medicare insurance premiums have not been released, here is what is known:

What does it mean for you?

	$3,600 more of your wages could be subject to Social Security tax in 2013. This equates to paying $446 more in tax.
	The average Social Security retirement beneficiary will receive an additional $252 in 2013.
	For all retired workers receiving Social Security retirement benefits the average monthly benefit of $1,240/mo. in 2012 will become $1,261/mo. in 2013.
	SSI (Supplemental Security Income) is the standard monthly payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
	A full-time student who is blind or disabled can still receive Supplemental Security Income (SSI) benefits as long as earned income does not exceed the student exclusion amounts listed above.

Warning: There’s also a 2% withholding increase!

Remember to plan for the expiration of the temporary payroll tax cut at the end of 2012. This will be automatically reflected in your paychecks beginning in 2013:

Note: The above tax rates are a combination of Social Security (4.20% in 2012; 6.20% in 2013) and 1.45% for Medicare. There is also a Medicare .9% wages surtax that is scheduled to begin in 2013 for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in the 2013 figures. Please recall that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed pay both halves of the tax.

When Should You Start Taking Social Security?

Some things to think about

Many experts suggest it is more beneficial to wait as long as you can to start pulling Social Security retirement benefits. Is this always the case? Here are some things to consider.

How it works

You have a choice of when to begin taking Social Security retirement benefits. For every year you delay the start of receiving your benefits, your monthly benefit amount increases. The amount you receive maximizes when you reach age 70. Here are the basics of how it works:

	You may start receiving reduced retirement benefits when you reach your minimum retirement age (currently 62 years old).
	Full benefits are received when you reach your “full” retirement age. This is currently around age 66.
	Each year you delay, your monthly payment benefit goes up around 4-8%.
	Your benefit maximizes when you reach age 70.

What are people currently doing?

According to a recent study conducted by the Urban Institute, 27% of the eligible recipients started taking benefits in 2011. This is reported to be a 35-year low. Reasons given for this trend:

	Delaying payments is beneficial in a low interest rate environment.
	The decision to wait hinges on your financial condition. The less you need the money, the more likely you are to delay receiving the benefit.
	If you’re still working, the likelihood of benefit delay goes up.

So what is your plan?

Here are some things to consider:

	If in good health…consider delay. You will need to live longer to make up for the lost benefits each year you delay receiving payments.
	Consider your “health” opportunity cost. A dollar when you are 62 might be spent much differently than a dollar spent when you are in your 70s. If you are very active now, will you be as active when you are 70? Using this philosophy, some retirees choose to receive benefits earlier.
	If you are working…delay. Remember Social Security retirement benefits are taxable until you reach your full retirement age. Pulling Social Security early and then paying income tax on it may not pay versus delaying the benefit.
	If do not need the money consider delay. Assuming you live a long life, the increased benefit amounts are currently set at a rate high above the returns received through traditional savings accounts and CDs. But you should know what your living expense needs are and understand whether you will need the additional income that Social Security can provide.
	If taking Social Security early allows you to keep from touching your IRA’s and 401ks then maybe take it now. Remember, money pulled from traditional IRAs and 401(k)s is subject to ordinary income tax. In addition, this retirement money is no longer able to compound as an investment.
	Do the math. Some say the breakeven for delay can be as long as 10 to 12 years (depending on your benefit amount). So it makes sense to use the numerous financial calculators available to determine your personal benefit for each year you delay receiving benefits.

Remember, delaying Social Security benefits is always a bit of a gamble. If you live a long life, you will receive payback on the benefit delay. If you die prior to receiving benefits, you will receive nothing for all the funds you placed into Social Security.

Fuel Surcharges Charge Ahead

Over the past few years businesses have latched onto a new trend that tends to act like an unwanted guest at a dinner party. They show up and just never leave. It is the fuel surcharge phenomenon. And while on the surface it appears to be a reasonable way to ensure a business’ long-term viability, it is becoming a profit center for many of them.

The Problem

With the rapidly changing price of fuel, it became nearly impossible for certain business providers like freight companies and airlines to price their services. As a solution, these businesses introduced a fuel surcharge to be added to their bills. So what is the problem? There would be none if the billing for excess fuel costs was transparent and fairly assessed. Unfortunately, this is often not the case. Here are some of the major problems:

	The fuel surcharge is often based on a per gallon cost that has not been seen for years. By keeping the base charge low, the company is able to “understate” their hourly cost. This makes them appear cheaper than their competition.
	Airlines like more of their airfare applied to fuel surcharges because they do not have to pay commissions on these fees.
	UPS, Federal Express, and other freight companies charge the fuel surcharge on a per package basis, not per location. So if you have three packages delivered to your home on one day, there is an equal fuel surcharge on each one. Extra profit for them? You bet. This is equally true for businesses in a multi-tenant building. Each location is paying the fuel surcharge fee to get the driver to a single address.
	Fixed fuel surcharges. Some local businesses simply charge a fixed fuel surcharge per trip whether they are traveling 5 blocks or 50 miles.
	Table-based fuel surcharges have miles per gallon (MPG) assumptions. Even those companies that publish a transparent chart of fuel charges based on cost of fuel have the ability to overcharge. Why? The cost charged is based on their miles per gallon assumptions.

What can you do?

	Ask for reduction or elimination of the charge. If the worker only drove a short distance to provide service, ask for the charge to be eliminated. If the worker is not authorized to eliminate the surcharge, ask for a reduction in the general bill to eliminate the fuel surcharge “profit”.
	Look at your bills. You will be surprised to find some suppliers are surcharging you a lot while others have no fuel surcharge what-so-ever. Bills to look at include garbage haulers, lawn services, plumbers, electricians, and other home repair services.
	Shop around. Let the supplier know you are unhappy with the fuel surcharge and will actively look to replace them.
	Consolidate shipments. If shipping multiple packages, consider sending one larger one. Remember shipping surcharges are per package and add up quickly.
	Be vocal. When fuel costs go down, expect your fuel surcharge to go down as well. Most consumers have become complacent about this charge.

While fuel surcharges may be with us for quite some time, shouldn’t the application of it go up AND down? At some point should it not go away? Historically, fuel costs were a part of doing business and built into the price of the service. Shouldn’t we expect this practice to return?

As always, should you have any questions or concerns regarding your situation please feel free to call.

While the temperatures start to cool off from the highs of the summer, the election cycle is beginning to really heat up. Included in this month’s newsletter are a few of the known tax changes for 2013. There are also articles discussing businesses’ annuity billing practices, giving children allowances, and ideas to control your email spam.

Allowances: What’s Happening Today?

A recent survey conducted by Harris Interactive for the American Institute of CPAs explored what parents are paying their children in the form of allowances. The survey was conducted in July 2012 using a telephone survey of 1,006 parents aged 18 or over. What were some of the key findings?
	61% of parents pay their children an allowance
	54% of parents start paying by the time their child is age 8
	48% of parents pay their children for good grades (average rate for an A? $16.60)
	89% of parents surveyed expect their children to earn their allowance with at least one hour of work per week.
	On average children spent 6.2 hours per week on chores
	Only 1% of kids save any of their allowance
	The average allowance? $65 per month ($780 per year)

Ideas for you

Opinions vary greatly regarding whether to give allowances, how much to pay, whether to require chores for payment, and whether to pay for good grades. If you are considering giving an allowance here are some ideas to consider.

	Set clear expectations. If you decide to pay an allowance make sure your children understand the rules. When will they receive it? What, if anything, must they do to receive it? What are the rules?
	Use an allowance to teach other things. Consider using the allowance to teach savings, charitable giving, and budgeting in addition to spending. Perhaps some of the allowance should be used to donate to church or a food-shelf. Have your child save for a larger ticket item like a bike or computer game. Perhaps a teen child should pay for their cell phone. Consider requiring part of the allowance be saved for college.
	Know the downside. If you require chores for pay, what happens if the work is not done? Perhaps a base allowance would work for you with bonus payments when special chores are done. Using an allowance to help understand the concept of work can be a good lesson if handled consistently. The downside to this approach is that your child may begin to think they should be paid for taking part in normal family activities.
	Use allowances as a discussion opportunity. A regular allowance gives you an opportunity to help your child learn important financial lessons. This is especially true if the allowance is used for things other than entertainment. This ongoing lesson can deeply establish an understanding for budgeting and savings and help your child create the association of work with income.

Given that schools often overlook this important topic, establishing good financial habits at an early age can pay dividends for your children during their adult years.

Preview Key 2013 Tax Figures

While official numbers for 2013 are not yet released by the Internal Revenue Service (IRS), many figures are formulas set within the Internal Revenue Code (IRC) or are based on the Consumer Price Index (CPI) published by the Department of Labor. Using the release of CPI figures in late August, a number of reference resources are projecting key figures for 2013. They are noted here for your planning purposes:

Tax Brackets: While the actual tax brackets are not set for 2013, the rate of inflation that impacts the income levels for each tax rate is anticipated to go up 2.5%. Please recall that if Congress does not act, the 10% income tax bracket becomes 15% and the top income tax bracket moves from 35% to 39.6%.

Personal Exemption: $3,900 in 2013 ($3,800 in 2012)

Standard Deductions: Tax Year 2013 2012 Single $6,100 $5,950 Head of Household 8,950 8,700 Married filing Joint 12,200 11,900 Married filing separately 6,100 5,950 Dependents 1,000 950 65 or blind: married Add $1,200 Add $1,150 single Add $1,500 Add $1,450 Other Key figures: Tax Year 2013 2012 Gift tax exclusion $14,000 $13,000 Roth and Traditional IRA Contribution limit 5,500 5,000

Caution: Remember, significant pre-scheduled tax law changes will automatically be put in place in 2013 unless Congressional action is taken. The figures noted here are most likely not to be changed by Congressional action.

Everyone Wants a ”Tiny” Piece of Your Income

There is an old wisdom:

Put a live frog in hot water and he’ll jump out.

Put a live frog in cold water, turn the burner on and you’ll have frog legs for dinner.

This wisdom is not lost on some businesses as they have learned it’s easier to sell you a service once and then bill you for it automatically over a long period of time versus reselling the service to you each year. This form of billing called “annuity billing” is quickly becoming common practice for many businesses. To make matters more complicated, certain businesses look for ways to add annuities on top of annuities. So who are the biggest users of this strategy?

	cell phone companies*
	cable and satellite television companies*
	garbage haulers
	banks*
	credit monitoring services
	cloud computing services (storage; file sharing)
	any “of the month” clubs (books; music; fruit; meats)
	land-line telephone companies*
	maintenance contracts from service providers (heating; air conditioning; landscaping)
	subscriptions (newspapers and magazines)
	Other on-line services (finding/rating local supplier services, online TV viewing, sports viewing packages)

* often contain multiple annuities within a billAction to take now

	Create a list of your annuities. Check your telephone and cable bills and list each monthly annuity charge separately. This will show you your actual monthly cost and your annual cost of annuities.
	Note long-term contracts. Check the annuities for any exit penalties and “auto renewal” clauses. Write the auto renewal companies immediately to formally move to month-to-month after the initial contract expires.
	Review the usefulness of an annuity. Start closing down those less valuable to you.
	Move to annual billing where possible. This requires the product to be resold to you each year.
	Look for alternatives. Perhaps it is more cost effective to drop a group of premium channels in your cable package and replace them with an online viewing service like NetFlix (or vice versa).
	Eliminate overlap. Do you need a landline telephone AND a cell phone? Can you combine your wi-fi and cable services to save money?
	Eliminate autopay. This out-of-site out-of-mind technique is wonderful for the annuity billers. Paying for a service each month is a simple reminder of the cost of the service and a subtle hint to assess the value of the service to you.

The problem with annuities is they slowly carve out portions of your income for many years. Perhaps it is time to jump out of an annuity or two and save some money.

The Problem of E-mail SPAM

Understanding CAN-SPAM

Turning back the clock to 2003, many states fed up with the flood of unwanted emails started passing their own anti-spam email laws. This stimulated the Federal Government to act in an attempt to make compliance a reasonable endeavor. This was done with the passage CAN-SPAM legislation. What is in the CAN-SPAM legislation? With the passage of the Federal anti-spam law CAN-SPAM, all emails need to follow these basic rules:
	They may not use false or misleading header information. This includes, but is not limited to, the “from”, “to”, and “reply to” routing information. It also prohibits the use of misleading or false domain names and email addresses.
	Subject lines may not be deceptive. The subject line of the email cannot mislead you in order for you to open the email.
	Advertisements must be clearly marked. There should be no confusion that the email you are about to read is trying to sell you something.
	Email senders must tell you where they’re located. This can be a street address or a valid post office box.
	You must be able to opt out of future email. The email must provide a clear way to allow you to opt-out of getting email from the sender in the future.
	Email senders must honor your opt-out request promptly. If you ask to opt-out of future emails, the email sender must honor your request within 10 business days. In addition, the email sender must keep their opt-out mechanism open for at least 30 days after sending you an email. This request also prohibits the potential spammer from forwarding your email to anyone else for future use.

What you should know

	No one may send you an unwanted email. If they do, they are legally required to honor your opt-out request.
	Exceptions to receiving unwanted emails abound. Key among them are: If you are already a customer If the email company is a non-profit If the email company follows the CAN-SPAM rules But even these suppliers must honor your opt-out requests
	Your best defense is a good spam filter. These can be provided by your internet provider who subscribe to lists of known spammers and then will automatically block these senders. You can also filter emails using your computer’s email software.
	The best spam filter is multi-layered. This includes using both your internet service provider and your email software based filter.
	Look to specific identification for further filtering. Most services allow you to specifically block addresses from sending you emails and they require the sender to manually confirm sending the email to you by entering a code. Prior to receiving the email, you must ok the sender. This keeps large spammers at bay, at the cost of inconveniencing your friends.
	Consider having two email accounts. Use one email for family & friends and the other email for business and internet commerce. In all likelihood the “commerce email” will be the primary source of spam. When the spam gets too heavy simply close down the “commerce email” and reopen a new one.

As always, should you have any questions or concerns regarding your situation please feel free to call.

How to Reduce Your Property Taxes

Since 2008, the market value of real estate has dropped in virtually every part of the United States. Unfortunately, to protect property tax revenue, the appraised value of these same homes has often not dropped in proportion to this property value shift.

What is Happening

A tax system that is based on the value of property works wonderfully when times are great. Increases in home values are an automatic revenue boost to those that depend on property taxes like cities, counties, school districts, and states. Unfortunately foreclosures and lower property values cause two problems:

To address this problem, appraisers tended to delay any drop in your property value to slow the erosion of property taxes. In addition, the tax rate applied to property types was quietly increased.

So what can you do?

If you dread the annual letter informing you that your property tax is going to go up again what can you do? Your best bet to reduce your property tax is usually to approach the assessor and ask for a property revaluation. Here are some ideas to successfully reduce your home’s appraised value.

While going through this process remember to be aware of the pressure these taxing units are under. This understanding can help temper your position and hopefully put you in a better position to have your case heard.

Watch out for Trolls

Running a small business in America used to be as simple as delivering a great product, with great service, at a fair price. Today you must also learn how to navigate the maze of tax forms, payroll law, disclosures, and a variety of other minute details.

But now, you can do all these things right and still find yourself in trouble. How? You could be blindsided by the threat of a lawsuit. Even a lawsuit that is frivolous. This is due to the economic fact that it is more cost effective to settle a potential lawsuit than to litigate one. Unfortunately, this form of legal blackmail is quickly becoming a business strategy.

Here Come the Trolls

A number of companies are in business primarily to extract a fee from unsuspecting businesses that happen to unwittingly come across their path. Just like trolls. So what kinds of things are extracting the “pay me or else” toll through threat of lawsuit?

• Patent Trolls. A number of companies are in the business of obtaining volumes of patents, with little to no intention of using them. They often simply catch others using their patent and then offer to settle for less than the average cost of a lawsuit. For example, it is being reported that 23 companies are being sued regarding a claimed patent around the idea of sending text messages with web links to mobile phones. Want to avoid the $1 million to $5 million average cost to defend a patent lawsuit? Simply pay a one-time fee of $750,000 and the company will drop their lawsuit threat.
• Consolidator Trolls. Often private equity groups will buy up a business category, change the licensing of product use, then go after those using a product or service that are not in compliance. A good example of this is the licensing of images. The consolidator group purchases an image licensing service, adjusts the terms of use, then they search the web for images that are now being used incorrectly. As a small business you could find yourself addressing a threat of a lawsuit because you are using an image you purchased the rights to many years ago. But for a one-time fee of $500 to $1,000 (per image) you can avoid nasty legal fees.
• E-mail; Fax Trolls. Many federal and state laws have cropped up to stop the massive spamming problem of unwanted emails and faxes. On the surface it is hard to argue that these laws are not a good thing. Unfortunately, tracking all the laws can be complicated for a small business. This complexity provides an opportunity for the trolls. A troll firm will contract with local law firms, who then create a profit share with their clients (other businesses) to collect and send them copies of all their faxes and emails. The local law firm then sends these to the “troll” who sends demand for payment to each sender that could potentially be violating some email or fax law. The demand for $500 one-time payment for each “violation” to the troll organization is often seen as a reasonable toll to make the problem go away.

What can you do?

Federal Spending Reduction Update

The one-year anniversary of the Congressional Agreement with President Obama to expand the National Debt ceiling is now upon us. As part of that agreement, Congress agreed to come up with $1.2 trillion in savings through legislation OR face automatic reductions in spending called a “sequester”.

Background

As the United States approached its lending limit in 2011, a deal was struck to extend the country’s borrowing authority by as much as $2.4 trillion. As part of this deal a Joint Select Committee was formed from both political parties to reduce spending of at least $1.5 trillion from fiscal 2012 to 2021. If the Joint Select Committee legislation failed to pass, $1.2 trillion in automatic deficit reductions would go into place automatically.

What you should know

Because the Joint Select Committee failed in its mission to generate approved legislation, the automatic deficit reductions will now go into place. Here is what you need to know:

• While automatic cuts are required to be made in January 2013, the fiscal year begins in October 2012.
• Congress has directed departments to keep spending at current levels through the election. This could mean deeper cuts after the election because there will be only 7 – 8 months left in the fiscal year.
• Cuts will be made equally from security and non-security budgets.
• Security budgets include the Department of Defense, Homeland Security, Veterans Affairs, Nuclear Security Administration, International Affairs and the intelligence community.
• Social Security, Medicaid, welfare, veterans’ benefits and civil/military retirement benefits are exempt from cuts.
• Medicare cuts are limited to 2%.
• Planned expiration of “Bush tax cuts” cannot be used to reduce the amount of the reductions.
• While the cuts will represent between 5 – 10% for impacted departments, the talk in the press is centered around closing facilities, limiting services, and laying off federal employees.

Rest assured, if sequestering takes place, there will be tremendous pressure on the newly elected Congress to address the automatic cuts and the ongoing federal deficit problem.

What the Health Care Reform Ruling Means

The Supreme Court’s recent ruling regarding the constitutionality of the Health Care Reform Law means the provisions within the bill will continue as passed by Congress. So what does this mean for you?

Health Care Bill of Rights Remains Intact.

The provisions of the bill required changes in health insurance coverage for most Americans. As a reminder, some of the key provisions include:

	Elimination of no coverage for pre-existing conditions. This change currently applies to children under age 19 and rolls out to all Americans beginning in 2014.
	Elimination of Arbitrary Rescission of Coverage.
	Elimination of lifetime limits for health care coverage
	Phase-out of annual dollar limit payments for insurance claims. The annual limit is $2 million in 2012-13 and no limits beginning in 2014
	Protecting your choice of doctors
	Elimination of insurance restrictions for emergency services

There are also a number of other provisions in the bill including required health coverage, state health exchanges, and other small business requirements.

How to Pay for it?

While there are many projections being made as to what all this additional coverage will cost, the law will start implementing the provisions introduced to pay for the bill next year. Key among these provisions:

Medicare payroll tax increase. Beginning in 2013, taxpayers with incomes above $200,000 ($250,000 if married) will see their Medicare taxes increase by 0.9% of their pay.

New Medicare Net Investment Tax. Beginning in 2013, taxpayers with income above $200,000 ($250,000 if married) could see a 3.8% Medicare surtax on their net investment income. Investment income is typically interest, capital gains, royalties, annuities, and rent.

Uninsured Tax Penalty. Beginning in 2014, non-exempt workers are required to maintain a minimum level of health insurance. If you do not have the required insurance there is a penalty of:

There are exemptions to this penalty that include:

	no penalty if you are below the tax filing income thresholds
	hardship exemptions
	religious exemptions
	3 month or less of non-coverage is penalty-free
	any uninsured individual under age 18 pays 1/2 of the full penalty fee

What You Need to Know

It is important to be prepared for the next phase of implementation of the Health Care Reform Law.

	If you have potential excess investment income you should conduct tax planning sessions. There may be moves that could minimize your exposure to the Medicare surtax.
	If you do not have health insurance, explore insurance alternatives to avoid the penalty. States are implementing health care programs and there are insurance premium credits for those that need help.
	Small businesses need to review their plans too. There is also a potential penalty for small businesses that do not offer minimum health insurance to their employees. If this may impact you, please review your options.
	Watch the political climate. Both parties wish to make changes to the Health Care law, so be prepared for changes to take place in late 2012 and early 2013.

Hospitality Exchanges

Catching the FREE Travel Wave

So you want to see the world but do not have a lot of money? What can you do? One option, that has been used by millions over the past decade, often allows you to stay FREE in virtually any city of your choice. You simply join a hospitality exchange community.

What is a Hospitality Exchange?

Per Wikipedia, a hospitality exchange or home stay network is “an organization that connects travelers with local residents in the cities they’re visiting.” In the purest form there is no money exchanged. You simply sign up as a member to a service, create your profile and then either become a host or a guest to others in the network. The more information you provide, the more likely you will be trusted and accepted by others in the network. As a host you might simply provide a place to sleep or you might provide a local experience to a fellow traveler new to your country or city.

These networks can get very detailed and involved. As a community they often organize events, provide feedback/rankings on places to go, and provide ratings of fellow members.

There are a number of hospitality exchanges that have popped up over the past decade with the largest being CouchSurfing.com with over 4 million members. Here is a list of some of them:

Why use a Hospitality Exchange?

	It saves money. If you are traveling extensively you can save a lot of money on hotel rooms by crashing on a spare bed or couch.
	You get out of the tourist bubble. Instead of hopping from one tourist stop to another, staying with a local can give you a more realistic experience of a city when seen through the eyes of a local resident.
	You gain connections throughout the world. The social network allows you to connect with people that sound interesting to you. Many of the members in these exchange communities form long-lasting friendships.
	It makes the world smaller. Perhaps CouchSurfing says it best: “At CouchSurfing, we envision a world where everyone can explore and create meaningful connections with the people and places they encounter. Building meaningful connections across cultures enables us to respond to diversity with curiosity, appreciation and respect. The appreciation of diversity spreads tolerance and creates a global community.”

Are There Problems?

Hospitality exchanges are not for everyone.

	Safety. You are staying with someone you have never met. While the exchanges try to weed out bad members from their communities, there is always the chance you have a bad encounter.
	Hippie Factor. In the early phases of this renewed social phenomena, those who used this network tended to be younger travelers. In addition, this travel concept tends to attract more “free spirit” types than the traditional travel crowd. This however, is changing as social networking attracts a broader segment of the population.
	Hidden Agendas. Sometimes the exchange is more interested in collecting and building their network than in serving as a means of connecting travelers with hosts.
	Privacy Issues. Your privacy is often the currency of these services. Some services do not allow you to delete your information, images, or emails from their service…ever. If privacy is important to you, read the fine print before you join.
	It’s only for Young People. The average age of people using hospitality exchanges tends to be between 18 – 29 years old. But this is changing as the service matures and additional services are added to the exchange.

While hospitality exchanges may not destroy the hotel industry, it certainly appears to be growing in popularity and it could impact how each of us experiences travel in the future.

Student Loans Get a Robin Hood Deal

Shuffling the cards makes winners and losers

Much in the press has highlighted the “victory” of keeping the interest rates on Stafford student loans from doubling to 6.8%. The 3.4% interest rates seems like a victory to the millions paying back their student debt. But is it really? Here is the full picture:

Background

Part of the deal Congress struck to expand the National Debt, was an agreement to rein in spending to curb the 40 – 60% excess annual spending over annual federal receipts. A super committee including representatives from each party met for months to determine how to cut spending to pre-agreed levels. While the spending cuts were minor relative to annual spending, the committee failed to reach an agreement. Anticipating this roadblock, Congress set some “automatic” spending cut levels that are now being faced throughout the government.

Student Aid Programs were not immune to these cuts and the popular Stafford Loan program was scheduled to have its interest rates doubled from 3.4% to 6.8%. With national student debt now exceeding credit card debt, this dramatic change in rates was quickly placed in the crosshairs of public opinion.

The Deal

In a deal announced in early July, 2012, the Democrats and Republicans agreed to extend the 3.4% interest rate for another year. Per the U.S. Student Aid Association, this change will save upwards of $1,000 per student and will help an estimated 7.4 million students who rely on this program. But this is only part of the story, as other cost cutting measures offset this interest rate extension. Here are the other provisions worth noting:

	The 3.4% rate is temporary. In twelve months the rates will once again be doubled, this despite the historic low interest rate on mortgages and the low cost of funds available to all lending authorities. The IRS’ own interest rate publication called “AFRs” suggests a reasonable long-term loan rate in the low 3% range.
	Graduate Students are Omitted. The lower rate is now only available to undergraduate students. Graduate students must now pay the doubled rate.
	Grace Period….gone. Prior programs included subsidized interest payments while in school and for a 6-month grace period after leaving school. These grace periods are now gone.
	Repayment incentives…gone. Gone too are the repayment incentives to encourage early loan repayment for loans originated after 7/1/2012. While older loans will still have this provision, this enhanced repayment incentive is no longer available to new borrowers.
	Harder to Receive the Maximum. Other changes limit the amount of funding available, restrict the number of eligible semesters and generally make it more difficult to qualify for funding.

As the election date draws near, expect to hear more about proposed changes in this area as the high annual increases in the cost of college meet head-on with the need to trim the national deficit and the related cost of educational funding programs.

As always, should you have any questions or concerns regarding your situation please feel free to call.