Tough economy - fight back
It's been more than four years since the financial crisis first knocked you back on your heels. You've probably been on the defensive ever since, doing your best to deflect whatever punches the economy has thrown your way. Of course, the trick to any good rope-a-dope strategy is to sit back and let your opponent tire out before you unleash your own flurry of blows.
Get ready to go on the offensive. Your adversary -- the lousy economy that has battered your portfolio, home value, and net worth, not to mention your confidence -- continues to come at you but has clearly lost some of its sting.
The unemployment rate, while still high, has fallen from 10% in 2009 to 8.3%. Economic growth, while still slow, has accelerated
from an annual pace of 0.4% a year ago to 2.8%. And while the Dow Jones industrial average is still roughly 10% below where it was before the financial panic began, it's approaching the 13,000 level again.
Smart strategies from top experts on how to manage your investments, real estate, career, safety net, and savings, follow. None of these moves will undo the effects of the downturn. But they will help set the stage for your financial comeback.
Move 1. Change your stance on stocks
Old strategy: When the economy cratered, investors reacted emotionally to the market in ways that simply didn't pay off.
Best move now: Rationally reassess how much risk you should be taking with stocks based on changes in your circumstances.
Why: While only 3% of people abandoned equities altogether in their 401(k)s during the financial crisis, investors didn't exactly behave all that rationally during the downturn.
The young, for instance, grew seriously fearful, with 18- to 30-year-olds stashing more of their portfolios in cash than even baby boomers. Fund investors yanked billions out of U.S. equities in 2009 and shifted that into fixed income, only to see bonds get trounced by stocks that year. And the few brave souls who went searching for big gains raced into foreign stocks in 2009 and 2010, just in time for overseas equities to tank last year.
The moral of this story: Instead of trying to course-correct in reaction to a storm, you're better off calmly replotting your plan.
How to land this punch: Start with a range of equity allocations that's appropriate for your age. Those 55 and up will want to keep from 40% to 65% of their portfolios in stocks, says Lew Altfest, a financial planner in New York City. Younger investors should shoot for a stake between 60% and 80%.
Now consider how your circumstances have changed since before 2008. Chances are, you have a much better sense of your job security. Financial planners refer to your future ability to generate income -- and the dependability of that income -- as your "human capital," which must be factored into your asset allocation.
Economy in recovery? Not so fast
For instance, the income security that tenured professors enjoy allows them to be aggressive when it comes to equities. Work for a European bank, though, where you're one Greek default away from losing your job, and you'll want to ratchet down your stock exposure to the lower end of your range. "If you don't know where your next dollar is coming from, you can't afford more risk," says Colorado Springs financial planner Allan Roth.
You have a better sense of your tolerance for risk as well. That can also help determine whether you should be at the upper or lower end of your range. So too should your target retirement date. If you've concluded that you'll have to work several years longer than expected to recoup your market losses, "you can press the upper end of your range because you have more time," Altfest says.
Move 2. Take a calculated risk: Buy tech stocks
Old strategy: Some investors played defense and hid behind Treasuries, not realizing how expensive this security blanket had become.
Best move now: Go on the offensive by betting on tech stocks, which are cheaper than they've been in recent memory.
Why: What was safe is now risky, and what was risky has become a whole lot safer. Before the downturn, 10-year Treasuries were paying you two and half times the yield of the S&P 500. Today they're shelling out less than stock dividends. Meanwhile Uncle Sam's balance sheet is in far worse shape -- remember last year's credit downgrade?
Tech stocks have also come a long way -- but for the better since the dotcom days. The sector has become an earnings driver. Tech profits grew 20% faster than the S&P 500's last year, and they're projected to outpace the broad market again in 2012, according to S&P Capital IQ. At the same time, tech trades at nearly the same price/earnings ratio as the S&P 500, a far cry from a decade ago.
What's more, many companies in this sector also exhibit the kind of steady-Eddie characteristics that are valuable in tough times. "Tech can do well on its own," says Alex Motola, a Thornburg funds adviser. Businesses, for example, have to upgrade software or buy data storage, regardless of what's going on in the economy, to maintain and boost their productivity.
How to land this punch: Start by taking profits from your gains in government bonds last year -- Treasuries maturing in 10 years or more returned a whopping 30%. Next, trim that stake by an additional 5% to 10% -- Uncle Sam's debt now makes up more than a third of the total bond market, but financial planners recommend cutting back. Prior to the crisis, Treasuries made up only 25% of the bond market, so shoot for that target.
Use that money to boost your stake in tech. The typical domestic-stock fund that isn't a tech sector portfolio keeps about 18% of its assets in this group. Yet tech makes up nearly 20% of the broad market, and many market strategists say you can safely boost your stake to around 25% of your equities.
Blue-chip tech stocks aren't simply generating steady sales growth, they're also paying out dependable dividends. Motola likes Microsoft, yielding 2.7%. More than 80% of the software giant's sales are to cash-rich corporations, not consumers, and the company's earnings are forecast to grow more than 9% annually for the next five years. Plus, with a P/E of 11.2, based on trailing 12-month earnings, the stock is trading at a 20% discount to the S&P 500. Another good bet is IBM, with a projected earnings growth rate of around 11% and a modest P/E of 14.4.
Best bets in tech for 2012
Prefer a diversified fund? Check out Vanguard Information Technology, which owns more than 400 stocks and counts Microsoft and IBM among its top holdings. VGT charges rock-bottom fees of just 0.19% of assets.
Move 3. Your 401(k): Max it out right now
Old strategy: Maintain your contribution rate so as not to fall behind. Of course, by failing to boost their 401(k) savings, investors did fall behind as the market failed to deliver.
Best move now: Max out your 401(k) quickly -- you're running out of time, and your scorecard shows you're behind on points.
Why: If you've learned anything from this downturn, it's that you can't depend on stocks to turbocharge your retirement savings. The S&P 500 index lost ground on an inflation-adjusted basis over the past four years, just as it did in the 2000s thanks in part to two severe recessions. "The economy isn't exactly rewarding you," says New York City financial planner Gary Schatsky.
So what seems like good news -- the fact that the average worker has maintained the same 401(k) contribution rate of around 7% of pay that he had in 2007 -- actually isn't.
How to land this punch: Salaries are expected to rise 3%, on average, this year. Start there. Shift that amount into your 401(k). Assuming you were saving 7%, that brings your savings rate to 10%. You may not feel that you can do more, but test yourself.
"Raise your contributions to a level that might feel uncomfortable," says Chicago financial planner Chris Long, adding that you can always change your mind later.
Try this: Every three months boost your contribution by one point. Keep it up and your savings rate will hit 15% by the summer of 2013. Depending on your pay, that could max you out (the annual federal limit was raised this year to $17,000, though workers 50 and older can put in $5,500 more). If not, keep going and you'll reach 17% by the end of next year. Now, 17% isn't exactly a round number, but if you include a typical employer match of 3%, it will bring your overall savings rate to 20%, a good target to aim for.
How I'm easing into retirement
Why? If you're 45, earn $100,000, saved $300,000 and are socking away 10% of your pay, the chances your nest egg could survive until you're 95 would be just 56%, according to T. Rowe Price's retirement calculator. Boost your savings rate to 20%, though, and your chances of success shoot up to 76%.
Move 4. Home buying: Get back into the ring
Old strategy: Sit tight, because it could take years for the market to fully recover. In fact, there was little else you could do while housing was in a standing eight count.
Best move now: Act immediately. Use today's low prices and mortgage rates to take advantage of the still-strong rental market.
Why: Housing prices continued to sink at the end of last year, but most economists think home values will hit bottom in 2012. One sign: The inventory of homes on the market fell 9% in 2011 to the lowest level since March 2005.
Moody's Economy.com predicts that by 2015, average prices will rise 14%. "There's going to be a limited time frame for people to get a bargain in this market," says Daren Blomquist of data firm RealtyTrac.
But while buyers are coming off the sidelines, plenty of families are still content to rent or may not have adequate savings, income, or credit to qualify for rock-bottom mortgages. That, plus a tight supply of apartments, should keep vacancies low and rents high, says Brad Doremus, a senior analyst for Reis, a real estate research firm.
How to land this punch: Target investment properties in a nearby neighborhood that you're familiar with, preferably one near an employment center like a university. Make sure the rent will cover not just your loan payments, taxes, and fees, but also a 20% cushion for repairs and vacancies. And don't overpay.
Investors, who can typically close deals faster than other buyers because they often bring more cash to the deal and don't have to sell existing homes, tend to offer 10% to 20% below list price, according to Campbell/Inside Mortgage Finance.
If you're a few years away from calling it a career, consider purchasing your retirement home now -- and rent it out until you're ready to quit. Some of the most attractive retirement destinations are proving to be strong rental markets now.
Austin, for example, which made MONEY's Best Places to Retire list in 2011, boasts a favorable 4.9% vacancy rate, and rents rose 3.2% last year. While mortgages on investment properties are more expensive than loans on principal homes, you can still get a good rate -- expect to pay around half a point higher than a primary-home mortgage as long as you put 20% down and have a solid credit score.
Best places to be a landlord
Move 5. Your career: Think inside the box
Old strategy: Cast as wide a net as possible. In a lousy job market, you had no choice but to do whatever it took to find work.
Best move now: Look within your existing network. The challenge is no longer just keeping a job, it's preventing your career -- and wages -- from stagnating.
Why: Though the job market is finally showing signs of steady, if modest, improvement, companies aren't yet ready to start hiring en masse. There are still too many uncertainties in the global economy -- think Europe.
However, employers do need to fill full-time slots, and they're looking inward. "Nowadays, firms are thinking more in terms of career development and how to build the skill sets that they need internally," says Catherine Hartmann, a principal at the human resources consulting firm Mercer.
How to land this punch: If you survived the recession, you're probably managing a heavier workload with a downsized staff. Use that as leverage in negotiations for pay raises and promotions, Hartmann says. Evaluate your worth by analyzing your performance during such trying times.
"The people companies trust and value most are current employees. You want to tap into that," says Tory Johnson, CEO of recruiting firm Women for Hire.
Next, start talking. Identify colleagues in leadership positions and other key players at work and let them know that you want to be on their radar for future openings. Schedule an informal chat with an internal recruiter about your desire to move around.
Talk your way to a better raise
Finally, don't turn away outside entreaties. Working in your favor is the fact that highly skilled workers -- whose salaries have barely budged in real terms since before the financial crisis -- are starting to get feelers from competitors, says Ryan Hunt, a career adviser at CareerBuilder. So "companies will have to do more to keep their best workers," he says.
Move 6. Your insurance: Shore up your safety net
Old strategy: At a time when incomes and net worth were plummeting, households pared back on insurance -- an unsafe move.
Best move now: Make sure you have a safety net to protect against all types of risks.
Why: In the midst of the financial storm, cutting some of your insurance costs may have seemed like a necessary evil. The number of households with life insurance hit a 50-year low in 2010, according to research firm LIMRA, as families tightened their belts.
But ripping open your safety net in response to an economic crisis may have left you and your family vulnerable to unexpected life events -- like illness, premature death, or even a natural disaster.
So just as you would review how your retirement funds are invested, you need to reevaluate your insurance coverage to make sure it's not out of sync with your post-recession status. The last thing you'd want is to survive the financial crisis only to be upended by a different type of emergency.
How to land this punch: For life insurance, the goal is to make sure your spouse and kids have enough money to live comfortably and pay major expenses like college. Roughly speaking, that's anywhere from five to 10 times your annual salary.
Stopped paying your premium or lost your employer's group coverage? Then start shopping. A 10-year $500,000 term life policy from TIAA-CREF would cost a healthy 55-year-old man about $1,000 a year, a 50-year-old woman just $515 a year. Use the calculator at lifehappens.org to analyze your needs, and get quotes at Accuquote.com or Insureme.com. If you have coverage but haven't reviewed the terms lately, see whether you can get a better price.
"We've often been able to reinsure a person who had an older policy, say, 20 years old, for less money," says Alexandria, Va., financial planner Kelly Campbell.
Send The Help Desk your money questions
Households that cut back on homeowners and auto coverage need to make sure they didn't go too far, says Larry Ginsburg, an Oakland financial planner.
Can't afford to fully restore your coverage? Raise your deductible to $1,000, he says. Also, don't assume that your homeowners coverage amount should decline just because your home value has. The rule of thumb is to insure the amount it would cost to repair or rebuild your home, and that's a factor of local construction and materials costs, not market value.
Move 7. Your budget: Take a breather from cutting back
Old strategy: Slash your spending and boost your emergency fund by several months. Both moves were smart in scary times.
Best move now: You can stop cutting back now, as long as you commit to capping your spending for several years.
Why: After four years of being hunkered down in crisis mode, you can relax, within reason. The reality is, you can't chop your spending forever -- in fact, such severe austerity may eventually lead to binging. Already households are starting to ease up, as the savings rate fell from about 7% in May 2009 to 4% at the end of 2011. Of course, you don't want to see this trend continue forever either. It's time to strike a balance, says Los Angeles financial planner Justin Krane.
How to land this punch: If you're a retiree, a surprisingly effective way to cap your spending is to maintain your intended savings withdrawal rate -- just forgo making the annual inflation adjustments for the next few years, says Georgia planner Lee Baker.
A conservative approach to tapping your retirement accounts is to withdraw 4% of your nest egg in the first year, but to boost that initial amount in subsequent years to keep pace with inflation. Skipping inflation adjustments, though, can help mend a damaged portfolio.
T. Rowe Price found that if you retired in 2000 with $500,000 and used the 4% rule, your strategy at the end of 2010 would have had only a 29% chance of surviving a 30-year retirement. Had you taken no inflation adjustments in the three years after each of the past two bear markets, though, your chances of success would have shot up to 69%.
Workers can try something similar. Over the next several years you're likely to start collecting raises again. Yet you've proved that you can live on your current spending. So let's say you make $100,000 and "spend" 80% of that (including taxes). Well, if you get hikes of 3% a year for the next five years, your salary would climb to $116,000. Rather than spending 80% of that, though, stick to the original $80,000 budget, plus the additional amount you pay in taxes.
Best New Money Moves
That won't be nearly as hard as cutting your spending was at the onset of the financial crisis. Then again, the times aren't as tough either. And small moves like this will surely help you go the distance.
Do you know a Money Hero? MONEY magazine is celebrating people, both famous and unsung, who have done extraordinary work to improve others' financial well-being. To nominate your Money Hero, email heroes@moneymail.com.
Saturday, February 25, 2012
6 Benefits and Rewards of Having Awesome Credit
You've been diligent about paying the your bills on time, took steps to clean up your credit report of errors, and have even paid down your credit card balances. Having a high credit score and good credit history can set you up for many perks and low-interest loans and offers in the near future. While you can still survive with poor or less-than-stellar credit, those extra points will end up saving you money in interest charges over time and can also give you some more negotiating power.
Whether you're moving to a new city, are ready to get your first mortgage, or just want to avoid some of the inconveniences of setting up a new account with a security deposit, having awesome credit will help you in more ways than one.
Here are just six benefits and rewards of having great credit:
1. Increased credit card limits. Your borrowing capacity can increase significantly when you prove to creditors that you're a responsible credit card holder and can handle more credit. You can request a credit limit increase or the credit card company will just increase your limit automatically and let you know that you've earned this perk. Remember that the ratio of your available credit to used credit also plays a role when calculating your credit score; raising the limit could add a few more points to your already-high credit score.
2. Attractive mortgage and refinancing rates. Lenders are more likely to extend an attractive rate for your home loan when you have a high credit score and clean credit history. You are their ideal customer when it comes to getting a mortgage or refinancing your home; your high credit score wins you points with the underwriting department and tells the bank that you are a responsible borrower. You might also have more negotiating power when it comes to closing costs and other fees. Since banks are competing for your business, it's in their best interest to offer you the best possible deal in town.
[See 12 Money Mistakes Almost Everyone Makes.]
3. Lower financing rates on a car lease. If you're in the market for a new car and are thinking of leasing instead of buying, you might have some bargaining power when you flaunt your high credit score. Some dealers will be happy to offer you lower-than-average financing rates because they know that you will be paying back that loan on time. A clean credit history tells the dealer that you're a responsible borrower. If you can't negotiate a better rate, the dealer might be able to lower the price of your car instead. And don't forget about your insurance company; when they run the car's VIN through the system and review your insurance package, you may be able to get a better rate because of stellar credit.
4. Easy vacation home rental reservations. Planning an extended stay vacation and looking for a rental home? Talk to the rental agency about waiving fees or negotiate lower rates based on your credit history. Most rental agencies will run a credit check before extending a rate. You could end up saving a good amount of money on the rental property with strong credit.
5. Excellent credit card deals. Credit-savvy consumers know that it pays to use reward credit cards as long as they pay off the balance each month. The best rewards cards for people with excellent credit often provide the most attractive rewards points, free gifts, cash-back deals, and low introductory rates. While earning these bonuses is nice, make sure you don't overspend or carry a balance on these credit cards. Don't forget to stick to the smart spending habits that got you the great credit score in the first place.
6. More negotiating power. If you're applying for a personal loan from a corporate bank or a private loan from a privately held financial institution, having a high credit score could give you more negotiating power. You may be able to get a higher credit line, lower interest rates, or work out an attractive repayment plan just because you have such a solid credit history. Don't be afraid to use your credit score as leverage when negotiating a deal; the lender will consider your ability to pay back that loan on time when qualifying you for a certain amount.
Sabah Karimi is a top Yahoo contributor and a Wise Bread expert on best grocery cards and career tips.
You've been diligent about paying the your bills on time, took steps to clean up your credit report of errors, and have even paid down your credit card balances. Having a high credit score and good credit history can set you up for many perks and low-interest loans and offers in the near future. While you can still survive with poor or less-than-stellar credit, those extra points will end up saving you money in interest charges over time and can also give you some more negotiating power.
Whether you're moving to a new city, are ready to get your first mortgage, or just want to avoid some of the inconveniences of setting up a new account with a security deposit, having awesome credit will help you in more ways than one.
Here are just six benefits and rewards of having great credit:
1. Increased credit card limits. Your borrowing capacity can increase significantly when you prove to creditors that you're a responsible credit card holder and can handle more credit. You can request a credit limit increase or the credit card company will just increase your limit automatically and let you know that you've earned this perk. Remember that the ratio of your available credit to used credit also plays a role when calculating your credit score; raising the limit could add a few more points to your already-high credit score.
2. Attractive mortgage and refinancing rates. Lenders are more likely to extend an attractive rate for your home loan when you have a high credit score and clean credit history. You are their ideal customer when it comes to getting a mortgage or refinancing your home; your high credit score wins you points with the underwriting department and tells the bank that you are a responsible borrower. You might also have more negotiating power when it comes to closing costs and other fees. Since banks are competing for your business, it's in their best interest to offer you the best possible deal in town.
[See 12 Money Mistakes Almost Everyone Makes.]
3. Lower financing rates on a car lease. If you're in the market for a new car and are thinking of leasing instead of buying, you might have some bargaining power when you flaunt your high credit score. Some dealers will be happy to offer you lower-than-average financing rates because they know that you will be paying back that loan on time. A clean credit history tells the dealer that you're a responsible borrower. If you can't negotiate a better rate, the dealer might be able to lower the price of your car instead. And don't forget about your insurance company; when they run the car's VIN through the system and review your insurance package, you may be able to get a better rate because of stellar credit.
4. Easy vacation home rental reservations. Planning an extended stay vacation and looking for a rental home? Talk to the rental agency about waiving fees or negotiate lower rates based on your credit history. Most rental agencies will run a credit check before extending a rate. You could end up saving a good amount of money on the rental property with strong credit.
5. Excellent credit card deals. Credit-savvy consumers know that it pays to use reward credit cards as long as they pay off the balance each month. The best rewards cards for people with excellent credit often provide the most attractive rewards points, free gifts, cash-back deals, and low introductory rates. While earning these bonuses is nice, make sure you don't overspend or carry a balance on these credit cards. Don't forget to stick to the smart spending habits that got you the great credit score in the first place.
6. More negotiating power. If you're applying for a personal loan from a corporate bank or a private loan from a privately held financial institution, having a high credit score could give you more negotiating power. You may be able to get a higher credit line, lower interest rates, or work out an attractive repayment plan just because you have such a solid credit history. Don't be afraid to use your credit score as leverage when negotiating a deal; the lender will consider your ability to pay back that loan on time when qualifying you for a certain amount.
Sabah Karimi is a top Yahoo contributor and a Wise Bread expert on best grocery cards and career tips.
Thursday, February 9, 2012
18 Tax Credits and Deductions to Take This Year
Even the most organized people hate tax season, but this year Uncle Sam has a special present: two extra days to prepare. Taxpayers will have until Tuesday, April 17 to file their 2011 tax returns because April 15 falls on a Sunday, and Emancipation Day -- a holiday observed in the District of Columbia -- falls on Monday, April 16. According to federal law, D.C. holidays impact tax deadlines in the same way that federal holidays do. Therefore, all taxpayers will have two extra days to file this year. Taxpayers requesting an extension will have until October 15 to file their 2011 tax returns.
Now on to your returns: Claim these often overlooked deductions and credits and you just might be able to pay less money to the IRS.
Hooray for inflation, at least when it comes to tax preparation. When general prices rise, the IRS nudges up some of its limits. Here's what's new for 2011 returns:
-- Personal and dependent exemption: $3,700, up $50 from 2010.
-- Tax-bracket thresholds increase for each filing status: For a married couple filing a joint return, for example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket is $69,000, up from $68,000 in 2010.
-- The maximum earned income tax credit (EITC): $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.
-- Cost-basis reporting by brokers: As of 2011, brokers must track clients' purchases of stock, real-estate investment trusts and foreign securities, and then report the original cost to the IRS when the asset is sold. This is an effort to improve tax compliance by investors. The rules for investments in mutual funds, bonds, options and many exchange-traded funds.
1. IRA/Roth Conversion: When you contribute to an individual retirement account (IRA), you help fund a future goal while lowering your current tax bill. In other words, socking cash in an IRA is like saving with help from your Uncle Sam.
The rules are pretty simple: You have until the tax-filing deadline (again, that's April 17) to contribute up the lesser of your taxable compensation for the year or $5,000 to a 2011 IRA ($6,000 if you are 50 or older). If you are self-employed, have a Keogh or SEP-IRA, and have filed for an extension to October 15, you can even wait until then to put 2011 money into those accounts.
Even if you're covered by a retirement plan at work, you can deduct some or all of your IRA contribution. The limits have increased for tax year 2011 modified adjusted gross income (AGI) as follows:
-- More than $92,000 but less than $112,000 for a married couple filing a joint return or a qualifying widow(er)
-- More than $58,000 but less than $68,000 for a single individual or head of household, or
-- Less than $10,000 for a married individual filing a separate return.
If your spouse is covered by a retirement plan at work but you are not, your deduction is phased out if your modified AGI is more than $173,000 but less than $183,000. If your modified AGI is $183,000 or more, you cannot take a deduction for contributions to a traditional IRA.
2. Roth IRA conversion: The income limit for Roth conversions was permanently removed, but taxpayers who converted to Roth IRAs in 2011 no longer have the option of deferring conversion income into later years, as was true for 2010 conversions. That means it's time to pay Uncle the taxes due on your conversion.
3. Itemized deductions and personal exemptions: The itemized deduction limitation is repealed for 2011 (and through 2012). This means that taxpayers can deduct the full amount of their itemized deductions in 2011. The personal exemption phase-out rules also do not apply through 2012.
Get the Credit(s) You Deserve
Tax credits are even better than deductions, because they lower your taxes dollar for dollar, instead of being calculated based on your tax bracket. If you are using last year's return as a guide, you should note that some credits, like the Making Work Pay credit, have expired. Still, there are plenty of other credits for taxpayers who qualify -- so don't miss them!
[Also see: Surprising Jobs with $100K Salaries -- After Only a Two-Year Degree]
4. The Child Tax Credit is up to $1,000 for each qualifying child who was under the age of 17 at the end of 2011. This credit can be claimed in addition to the credit for child and dependent care expenses. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. (Details are in IRS Publication 972.)
5. The Earned Income Tax Credit is a refundable credit (meaning that even if your credit exceeds your tax liability, you don't lose the excess and are entitled to receive any overage as a refund) for married couples filing jointly with 2011 earned income under $49,078 and singles with income under $43,998. The IRS has created handy EITC calculator to help you determine whether you qualify for the credit. (Details are in IRS Publication 596.)
6. The Child and Dependent Care Credit is calculated based on your expenses paid for the care of your kids under age 13 to enable you to work or to look for work in 2011. The credit is 20 percent to 35 percent of your child-care expenses, up to $6,000 -- the size of your credit depends on your income. (Details are in IRS Publication 503.)
7. The Retirement Savings Contributions Credit is designed to help low- and moderate-income workers save for retirement. Individuals with incomes of up to $28,250 and married couples with joint incomes of up to $56,500 may qualify for a credit of up to $1,000 or up to $2,000 if filing jointly. Check out Form 8880 for the rules.
8. Energy and Appliance Tax Credit applies to taxpayers who made energy-efficiency improvements to their homes in 2011. You may be eligible for a tax credit of 10 percent for the cost, up to a maximum of $500. Approved improvements include new windows, insulation, high efficiency furnaces, water heaters and air conditioning, among many others, but you will need your receipts and manufacturer certification as back-up. (Energy Star has a list of items that qualify for the tax deduction).
College Costs
There are two federal tax credits available to help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Credit and the Lifetime Learning Credit. To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot file for the credit. For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis.
9. The American Opportunity Tax Credit: Each student can now get a $2,500 "higher education tax credit" for the first four years of college. The credit is based on 100 percent of the first $2,000 of tuition and related expenses, including books, paid during the tax year, plus and 25 percent of the next $2,000 of tuition and related expenses paid during the tax year (subject to income phase-outs starting at $80,000 for singles and $160,000 for joint filers).
10. Lifetime learning credit: The credit can be up to $2,000 per eligible student and is available for all years of post-secondary education and for courses to acquire or improve job skills. The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.
11. Tuition and Fees Deduction: Every family can deduct up to $4,000 of college tuition and fees in 2011. If your modified AGI is between $65,001 and $80,000 for singles or between $130,001 and $160,000 for joint filers, you are entitled to a reduced deduction of up to $2,000. (IRS Publication 970)
Add Up Those Itemized Deductions
Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes. Some of those folks are leaving money on the table. If your deductible expenses exceed the 2011 standard deduction of $5,800 (up $100 from 2010) for singles and married individuals filing separately and $8,500 for heads of household, also up $100 and $11,600 for married couples filing jointly, be sure you itemize and grab these write-offs.
[Also see: Disruptions: Facebook Users Ask, 'Where's Our Cut?']
12. Miscellaneous deductions: These are deductible if they total more than 2 percent of your adjusted gross income. They include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.
13. Sales tax: You can deduct sales tax paid in 2011 if the amount was greater than the state and local income taxes you paid. In other words, you get to choose: Write off your sales taxes or write off your income taxes. If you didn't keep your sales-tax receipts, use the IRS's sales tax deduction estimator. Even if you claim the sales tax amount from the IRS tables, you can add in tax paid on vehicles or boats purchased during the year, except to the extent the sales tax rate on them is more than the general sales tax rate. If you live in a state with a high income tax, like California or New York, you will probably be better off claiming your state and local income taxes rather than sales taxes. If you live in a state with no income tax, like Florida, Texas, or Washington, be sure to take the sales tax deduction when you itemize.
14. Medical expenses: This one is hard to claim, because the bar is so high to qualify. You can only deduct the portion of your 2011 medical expenses that exceed 7.5 percent of your adjusted gross income. (IRS Publication 502)
15. Mileage: Deducting miles driven for work or other purposes can be a huge tax break and save you significant money. The IRS increased the mileage deduction amounts for 2011: Business mileage = 51 cents per mile from January 1 to June 30, and 55.5 cents per mile from July 1 to December 31, 2011; medical and moving = 19 cents per mile from January 1 to June 30, and 23.5 cents per mile from July 1 to December 31, 2011; and charitable = 16 cents per mile.
16. Mortgage insurance deduction: Borrowers with AGI's up to $100,000 may be able to treat qualified mortgage insurance as home mortgage interest, which means that 100 percent of 2011 premiums may be deductible. The insurance contract had to be issued after 2006 and deductions are phased out in 10 percent increments for homeowners with AGI's between $100,001 and $109,000. (IRS Publication 936)
17. Enhanced adoption credits: As part of the Patient Protection and Affordable Care Act (March 2010), the Adoption Tax Credit was extended one year until Dec. 31, 2011, the amount of credit was increased to $13,360 and it was made refundable, meaning that families can benefit even if they have less than $13,360 of federal income tax liability. If adoption expenses have been paid for by an employer, you may qualify to exclude up to $13,360 from income. The credit is subject to income phaseouts from $185,210 to $225,210 in AGI. (IRS Topic 607)
18. Classroom deduction for teachers: K-12 educators who work at least 900 hours during the school year can claim an above-the-line deduction of up to $250 ($500 if married filing joint and both spouses are educators, but not more than $250 each) of any unreimbursed expenses (books, supplies and computer equipment -- including related software and services -- other equipment, and supplementary materials) used in the classroom. (IRS Topic 458)
Even the most organized people hate tax season, but this year Uncle Sam has a special present: two extra days to prepare. Taxpayers will have until Tuesday, April 17 to file their 2011 tax returns because April 15 falls on a Sunday, and Emancipation Day -- a holiday observed in the District of Columbia -- falls on Monday, April 16. According to federal law, D.C. holidays impact tax deadlines in the same way that federal holidays do. Therefore, all taxpayers will have two extra days to file this year. Taxpayers requesting an extension will have until October 15 to file their 2011 tax returns.
Now on to your returns: Claim these often overlooked deductions and credits and you just might be able to pay less money to the IRS.
Hooray for inflation, at least when it comes to tax preparation. When general prices rise, the IRS nudges up some of its limits. Here's what's new for 2011 returns:
-- Personal and dependent exemption: $3,700, up $50 from 2010.
-- Tax-bracket thresholds increase for each filing status: For a married couple filing a joint return, for example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket is $69,000, up from $68,000 in 2010.
-- The maximum earned income tax credit (EITC): $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.
-- Cost-basis reporting by brokers: As of 2011, brokers must track clients' purchases of stock, real-estate investment trusts and foreign securities, and then report the original cost to the IRS when the asset is sold. This is an effort to improve tax compliance by investors. The rules for investments in mutual funds, bonds, options and many exchange-traded funds.
1. IRA/Roth Conversion: When you contribute to an individual retirement account (IRA), you help fund a future goal while lowering your current tax bill. In other words, socking cash in an IRA is like saving with help from your Uncle Sam.
The rules are pretty simple: You have until the tax-filing deadline (again, that's April 17) to contribute up the lesser of your taxable compensation for the year or $5,000 to a 2011 IRA ($6,000 if you are 50 or older). If you are self-employed, have a Keogh or SEP-IRA, and have filed for an extension to October 15, you can even wait until then to put 2011 money into those accounts.
Even if you're covered by a retirement plan at work, you can deduct some or all of your IRA contribution. The limits have increased for tax year 2011 modified adjusted gross income (AGI) as follows:
-- More than $92,000 but less than $112,000 for a married couple filing a joint return or a qualifying widow(er)
-- More than $58,000 but less than $68,000 for a single individual or head of household, or
-- Less than $10,000 for a married individual filing a separate return.
If your spouse is covered by a retirement plan at work but you are not, your deduction is phased out if your modified AGI is more than $173,000 but less than $183,000. If your modified AGI is $183,000 or more, you cannot take a deduction for contributions to a traditional IRA.
2. Roth IRA conversion: The income limit for Roth conversions was permanently removed, but taxpayers who converted to Roth IRAs in 2011 no longer have the option of deferring conversion income into later years, as was true for 2010 conversions. That means it's time to pay Uncle the taxes due on your conversion.
3. Itemized deductions and personal exemptions: The itemized deduction limitation is repealed for 2011 (and through 2012). This means that taxpayers can deduct the full amount of their itemized deductions in 2011. The personal exemption phase-out rules also do not apply through 2012.
Get the Credit(s) You Deserve
Tax credits are even better than deductions, because they lower your taxes dollar for dollar, instead of being calculated based on your tax bracket. If you are using last year's return as a guide, you should note that some credits, like the Making Work Pay credit, have expired. Still, there are plenty of other credits for taxpayers who qualify -- so don't miss them!
[Also see: Surprising Jobs with $100K Salaries -- After Only a Two-Year Degree]
4. The Child Tax Credit is up to $1,000 for each qualifying child who was under the age of 17 at the end of 2011. This credit can be claimed in addition to the credit for child and dependent care expenses. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. (Details are in IRS Publication 972.)
5. The Earned Income Tax Credit is a refundable credit (meaning that even if your credit exceeds your tax liability, you don't lose the excess and are entitled to receive any overage as a refund) for married couples filing jointly with 2011 earned income under $49,078 and singles with income under $43,998. The IRS has created handy EITC calculator to help you determine whether you qualify for the credit. (Details are in IRS Publication 596.)
6. The Child and Dependent Care Credit is calculated based on your expenses paid for the care of your kids under age 13 to enable you to work or to look for work in 2011. The credit is 20 percent to 35 percent of your child-care expenses, up to $6,000 -- the size of your credit depends on your income. (Details are in IRS Publication 503.)
7. The Retirement Savings Contributions Credit is designed to help low- and moderate-income workers save for retirement. Individuals with incomes of up to $28,250 and married couples with joint incomes of up to $56,500 may qualify for a credit of up to $1,000 or up to $2,000 if filing jointly. Check out Form 8880 for the rules.
8. Energy and Appliance Tax Credit applies to taxpayers who made energy-efficiency improvements to their homes in 2011. You may be eligible for a tax credit of 10 percent for the cost, up to a maximum of $500. Approved improvements include new windows, insulation, high efficiency furnaces, water heaters and air conditioning, among many others, but you will need your receipts and manufacturer certification as back-up. (Energy Star has a list of items that qualify for the tax deduction).
College Costs
There are two federal tax credits available to help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Credit and the Lifetime Learning Credit. To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot file for the credit. For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis.
9. The American Opportunity Tax Credit: Each student can now get a $2,500 "higher education tax credit" for the first four years of college. The credit is based on 100 percent of the first $2,000 of tuition and related expenses, including books, paid during the tax year, plus and 25 percent of the next $2,000 of tuition and related expenses paid during the tax year (subject to income phase-outs starting at $80,000 for singles and $160,000 for joint filers).
10. Lifetime learning credit: The credit can be up to $2,000 per eligible student and is available for all years of post-secondary education and for courses to acquire or improve job skills. The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.
11. Tuition and Fees Deduction: Every family can deduct up to $4,000 of college tuition and fees in 2011. If your modified AGI is between $65,001 and $80,000 for singles or between $130,001 and $160,000 for joint filers, you are entitled to a reduced deduction of up to $2,000. (IRS Publication 970)
Add Up Those Itemized Deductions
Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes. Some of those folks are leaving money on the table. If your deductible expenses exceed the 2011 standard deduction of $5,800 (up $100 from 2010) for singles and married individuals filing separately and $8,500 for heads of household, also up $100 and $11,600 for married couples filing jointly, be sure you itemize and grab these write-offs.
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12. Miscellaneous deductions: These are deductible if they total more than 2 percent of your adjusted gross income. They include tax-preparation fees, job-hunting expenses, business car expenses and professional dues.
13. Sales tax: You can deduct sales tax paid in 2011 if the amount was greater than the state and local income taxes you paid. In other words, you get to choose: Write off your sales taxes or write off your income taxes. If you didn't keep your sales-tax receipts, use the IRS's sales tax deduction estimator. Even if you claim the sales tax amount from the IRS tables, you can add in tax paid on vehicles or boats purchased during the year, except to the extent the sales tax rate on them is more than the general sales tax rate. If you live in a state with a high income tax, like California or New York, you will probably be better off claiming your state and local income taxes rather than sales taxes. If you live in a state with no income tax, like Florida, Texas, or Washington, be sure to take the sales tax deduction when you itemize.
14. Medical expenses: This one is hard to claim, because the bar is so high to qualify. You can only deduct the portion of your 2011 medical expenses that exceed 7.5 percent of your adjusted gross income. (IRS Publication 502)
15. Mileage: Deducting miles driven for work or other purposes can be a huge tax break and save you significant money. The IRS increased the mileage deduction amounts for 2011: Business mileage = 51 cents per mile from January 1 to June 30, and 55.5 cents per mile from July 1 to December 31, 2011; medical and moving = 19 cents per mile from January 1 to June 30, and 23.5 cents per mile from July 1 to December 31, 2011; and charitable = 16 cents per mile.
16. Mortgage insurance deduction: Borrowers with AGI's up to $100,000 may be able to treat qualified mortgage insurance as home mortgage interest, which means that 100 percent of 2011 premiums may be deductible. The insurance contract had to be issued after 2006 and deductions are phased out in 10 percent increments for homeowners with AGI's between $100,001 and $109,000. (IRS Publication 936)
17. Enhanced adoption credits: As part of the Patient Protection and Affordable Care Act (March 2010), the Adoption Tax Credit was extended one year until Dec. 31, 2011, the amount of credit was increased to $13,360 and it was made refundable, meaning that families can benefit even if they have less than $13,360 of federal income tax liability. If adoption expenses have been paid for by an employer, you may qualify to exclude up to $13,360 from income. The credit is subject to income phaseouts from $185,210 to $225,210 in AGI. (IRS Topic 607)
18. Classroom deduction for teachers: K-12 educators who work at least 900 hours during the school year can claim an above-the-line deduction of up to $250 ($500 if married filing joint and both spouses are educators, but not more than $250 each) of any unreimbursed expenses (books, supplies and computer equipment -- including related software and services -- other equipment, and supplementary materials) used in the classroom. (IRS Topic 458)
Wednesday, February 8, 2012
Simon Cowell: I Wanted to Keep Paula Abdul on X Factor
Credit: Jordan Strauss/WireImage.comWhen Simon Cowell let Paula Abdul go from The X Factor's judging panel, it was strictly business -- and not at all personal.
In fact, the reality TV mogul says he was overruled when it came to cutting Abdul loose along with mentor Nicole Scherzinger and host Steve Jones.
"I would've liked to have kept her," Cowell, 52, tells Extra of his longtime colleague Abdul, 49, with whom he judged American Idol for eight seasons. "She was very gracious and I said that to her. She understands it's business; it's never personal."
With Abdul and Scherzinger given the axe, Antonio "L.A." Reid is the only judge left to sit next to Cowell for season two until the vacancies are filled. "There's not a record executive out there who is as good as him for the job," Cowell confirms of the Epic Records head.
In terms of potential new judges, Cowell laughed off reports that he offered new mom Beyonce $100 million to take part. "I have no idea where this rumor came from," he told Extra. "It's complete nonsense."
So who is on Cowell's wish list? He tells ExtraMadonna could be "great" but "expensive" and that newly single Katy Perry "would be fun -- and she's feisty."
Tell Us: Who would you like to see as a judge on The X Factor?
In fact, the reality TV mogul says he was overruled when it came to cutting Abdul loose along with mentor Nicole Scherzinger and host Steve Jones.
"I would've liked to have kept her," Cowell, 52, tells Extra of his longtime colleague Abdul, 49, with whom he judged American Idol for eight seasons. "She was very gracious and I said that to her. She understands it's business; it's never personal."
With Abdul and Scherzinger given the axe, Antonio "L.A." Reid is the only judge left to sit next to Cowell for season two until the vacancies are filled. "There's not a record executive out there who is as good as him for the job," Cowell confirms of the Epic Records head.
In terms of potential new judges, Cowell laughed off reports that he offered new mom Beyonce $100 million to take part. "I have no idea where this rumor came from," he told Extra. "It's complete nonsense."
So who is on Cowell's wish list? He tells ExtraMadonna could be "great" but "expensive" and that newly single Katy Perry "would be fun -- and she's feisty."
Tell Us: Who would you like to see as a judge on The X Factor?
Obama Campaign Returning Funds Linked to Mexican Fugitive
Photo: AP
President Barack Obama speaks about manufacturing and jobs during a visit to Intel Corporation's Ocotillo facility in Chandler, Arizona, January 25, 2012.
U.S. President Barack Obama's re-election campaign says it is returning some $200,000 in donations made by the family of a Mexican casino owner who fled drug and fraud charges in the U.S.
The campaign announced Tuesday that it was refunding all contributions linked to Chicago brothers Carlos and Alberto Rojas Cardona after The New York Times raised questions about them.
The newspaper reported Monday that the two Cardonas are the brothers of casino owner Juan Jose Rojas Cardona, known as Pepe, who disappeared after jumping bail in Iowa in 1994 and has since been linked to violence and corruption in Mexico.
The Cardona brothers began raising money for the Obama campaign and the Democratic National Committee last year. Obama campaign spokesman Ben LaBolt said the campaign will return the contributions from the Cardonas and any other donors they brought to the campaign. LaBolt said more than 1.3 million Americans have made donations, which he said are constantly reviewed for any issues.
The New York Times cites prosecutors in the state of Iowa as saying Carlos Cardona arranged last year for the former chairman of the Iowa Democratic Party to seek a pardon for his brother Pepe from the governor. The report said no pardon was granted.
Some information for this report was provided by AP and Reuters.
The campaign announced Tuesday that it was refunding all contributions linked to Chicago brothers Carlos and Alberto Rojas Cardona after The New York Times raised questions about them.
The newspaper reported Monday that the two Cardonas are the brothers of casino owner Juan Jose Rojas Cardona, known as Pepe, who disappeared after jumping bail in Iowa in 1994 and has since been linked to violence and corruption in Mexico.
The Cardona brothers began raising money for the Obama campaign and the Democratic National Committee last year. Obama campaign spokesman Ben LaBolt said the campaign will return the contributions from the Cardonas and any other donors they brought to the campaign. LaBolt said more than 1.3 million Americans have made donations, which he said are constantly reviewed for any issues.
The New York Times cites prosecutors in the state of Iowa as saying Carlos Cardona arranged last year for the former chairman of the Iowa Democratic Party to seek a pardon for his brother Pepe from the governor. The report said no pardon was granted.
Some information for this report was provided by AP and Reuters.
Thursday, February 2, 2012
Instructions for Forms 1099-SA and 5498-SA - Main Contents
Table of Contents
File Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA, to report distributions made from an HSA, Archer MSA, or Medicare Advantage MSA (MA MSA). The distribution may have been paid directly to a medical service provider or to the account holder. A separate return must be filed for each plan type.
Transfers. Do not report a trustee-to-trustee transfer from one Archer MSA or MA MSA to another Archer MSA or MA MSA, one Archer MSA to an HSA, or from one HSA to another HSA. For reporting purposes, contributions and rollovers do not include transfers.
HSA mistaken distributions. If amounts were distributed during the year from an HSA because of a mistake of fact due to reasonable cause, the account beneficiary may repay the mistaken distribution no later than April 15 following the first year the account beneficiary knew or should have known the distribution was a mistake. For example, the account beneficiary reasonably, but mistakenly, believed that an expense was a qualified medical expense and was reimbursed for that expense from the HSA. The account beneficiary then repays the mistaken distribution to the HSA.
Under these circumstances, the distribution is not included in gross income, is not subject to the additional 20% tax, and the payment is not subject to the excise tax on excess contributions. Do not treat the repayment as a contribution on Form 5498-SA.
Under these circumstances, the distribution is not included in gross income, is not subject to the additional 20% tax, and the payment is not subject to the excise tax on excess contributions. Do not treat the repayment as a contribution on Form 5498-SA.
As the trustee or custodian, you do not have to allow beneficiaries to return a mistaken distribution to the HSA. However, if you do allow the return of the mistaken distribution, you may rely on the account beneficiary's statement that the distribution was in fact a mistake. See Notice 2004-50, 2004-33 I.R.B. 196, Q/A-76, available at www.irs.gov/irb/2004-33_IRB/ar08.html. Do not report the mistaken distribution on Form 1099-SA. Correct any filed Form 1099-SA with the IRS and the account beneficiary as soon as you become aware of the error. See Corrected Returns on Paper Forms in the 2012 General Instructions for Certain Information Returns for more information.
Archer MSAs and MA MSAs. When the account holder dies and the designated beneficiary is the spouse:
If the designated beneficiary is not the spouse or there is no named beneficiary, the account ceases to be an MSA as of the date of death and the fair market value (FMV) on that date is reported.
If there is more than one recipient, the FMV should be allocated among them, as appropriate.
If the beneficiary is the estate, enter the estate's name and taxpayer identification number (TIN) in place of the recipient's on the form.
- The spouse becomes the account holder of the Archer MSA,
- An MA MSA is treated as an Archer MSA of the spouse for distribution purposes, and
- Distributions from these accounts are subject to the rules that apply to Archer MSAs.
If the designated beneficiary is not the spouse or there is no named beneficiary, the account ceases to be an MSA as of the date of death and the fair market value (FMV) on that date is reported.
If there is more than one recipient, the FMV should be allocated among them, as appropriate.
If the beneficiary is the estate, enter the estate's name and taxpayer identification number (TIN) in place of the recipient's on the form.
If you learn of the account holder's death and make a distribution to the beneficiary in the year of death, issue a Form 1099-SA and enter in:
- Box 1, the gross distribution;
- Box 3, code 4 (see page 2); and
- Box 4, the FMV of the account on the date of death.
If you learn of the death of the account holder and make a distribution after the year of death, issue a Form 1099-SA in the year you learned of the death of the account holder. Enter in:
- Box 1, the gross distribution;
- Box 3, one of the following codes (see page 2):
1—if the beneficiary is the spouse,
4—if the beneficiary is the estate, or
6—if the beneficiary is not the spouse or estate;
- Box 4, the FMV of the account on the date of death.
HSAs. When the account holder dies and:
- The designated beneficiary is the surviving spouse, the spouse becomes the account holder of the HSA.
- The spouse is not the designated beneficiary, the account ceases to be an HSA on the date of the account holder's death. The FMV of the account as of the date of death is required to be reported in box 4. Follow the rules and coding above under Distribution in year of death and Distribution after year of death.
If you are required to file Form 1099-SA, you must provide a statement to the recipient. For more information about the requirement to furnish a Form 1099-SA or acceptable substitute statement to recipients, see part M in the 2012 General Instructions for Certain Information Returns.
The account number is required if you have multiple accounts for a recipient for whom you are filing more than one Form 1099-SA. Additionally, the IRS encourages you to designate an account number for all Forms 1099-SA that you file. See part L in the 2012 General Instructions for Certain Information Returns.
Enter the total amount of the distribution. Include any earnings separately reported in box 2. You are not required to determine the taxable amount of a distribution. Do not report a negative amount in box 1. Do not report the withdrawal of excess employer contributions (and the earnings on them) returned to an employer as a distribution from an employee's HSA. Do not report excess MA MSA contributions returned to the Secretary of Health and Human Services or his or her representative.
Enter the total earnings distributed with any excess HSA or Archer MSA contributions returned by the due date of the account holder's tax return. Include this amount in box 1. Report earnings on other distributions only in box 1.
Enter the appropriate distribution code from the list below that shows the type of distribution.
| 1—Normal distributions | Use this code for normal distributions to the account holder and any direct payments to a medical service provider. Use this code if no other code applies. Also, see Distribution after year of death on page 1. |
| 2—Excess contributions | Use this code for distributions of excess HSA or Archer MSA contributions to the account holder. |
| 3—Disability | Use this code if you made distributions after the account holder was disabled (see section 72(m)(7)). |
| 4—Death distribution other than code 6 | Use this code for payments to a decedent's estate in the year of death. Also use this code for payments to an estate after the year of death. Do not use with code 6. See Death of Account Holder on page 1. |
| 5—Prohibited transaction | See sections 220(e)(2) and 223(e)(2). |
| 6—Death distribution after year of death to a nonspouse beneficiary | Use this code for payments to a decedent's nonspouse beneficiary, other than an estate, after the year of death. Do not use with code 4. |
Enter the FMV of the account on the date of death. See Death of Account Holder on page 1.
File Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, with the IRS on or before May 31, 2013, for each person for whom you maintained an HSA, Archer MSA, or Medicare Advantage MSA (MA MSA) during 2012. You are required to file if you are the trustee or custodian of an HSA, Archer MSA, or MA MSA. A separate form is required for each type of plan.
For HSA or Archer MSA contributions made between January 1, 2013, and April 15, 2013, you should obtain the participant's designation of the year for which the contributions are made.
For repayment of a mistaken distribution amount, see HSA mistaken distributions on page 1.
For HSA or Archer MSA contributions made between January 1, 2013, and April 15, 2013, you should obtain the participant's designation of the year for which the contributions are made.
For repayment of a mistaken distribution amount, see HSA mistaken distributions on page 1.
You must report the receipt of a rollover from one Archer MSA to another Archer MSA, and receipt of a rollover from an Archer MSA or an HSA to an HSA in box 4.
Do not report a trustee-to-trustee transfer from one Archer MSA or MA MSA to another Archer MSA or MA MSA, from an Archer MSA to an HSA, or from one HSA to another HSA. For reporting purposes, contributions and rollovers do not include these transfers. However, see box 2 on this page for the reporting of a trustee-to-trustee transfer from an IRA to an HSA.
Generally, if a total distribution was made from an HSA or Archer MSA during the year and no contributions were made for that year, you need not file Form 5498-SA nor furnish a statement to the participant to reflect that the FMV on December 31 was zero.
In the year an HSA, Archer MSA, or MA MSA owner dies, generally you must file a Form 5498-SA and furnish a statement for the decedent. If the designated beneficiary is the spouse:
If the designated beneficiary is not the spouse or there is no designated beneficiary, the account ceases to be an HSA, Archer MSA, or MA MSA.
- The spouse becomes the account holder of the HSA or Archer MSA.
- An MA MSA is treated as an Archer MSA of the spouse for distribution purposes, but no new contributions may be made to the account.
If the designated beneficiary is not the spouse or there is no designated beneficiary, the account ceases to be an HSA, Archer MSA, or MA MSA.
If you are required to file Form 5498-SA, you must provide a statement to the participant (generally Copy B) by May 31, 2013. You may, but you are not required to, provide participants with a statement of the December 31, 2012, FMV of the participant's account by January 31, 2013. For more information about statements to participants, see part M in the 2012 General Instructions for Certain Information Returns.
If you furnished a statement of the FMV of the account to the participant by January 31, 2013, and no reportable contributions, including rollovers, were made for 2012, you need not furnish another statement (or Form 5498-SA) to the participant to report zero contributions. However, you must file Form 5498-SA with the IRS by May 31, 2013, to report the December 31, 2012, FMV of the account.
If you do not furnish another statement to the participant because no reportable contributions were made for the year, the statement of the FMV of the account must contain a legend designating which information is being furnished to the Internal Revenue Service.
If you furnished a statement of the FMV of the account to the participant by January 31, 2013, and no reportable contributions, including rollovers, were made for 2012, you need not furnish another statement (or Form 5498-SA) to the participant to report zero contributions. However, you must file Form 5498-SA with the IRS by May 31, 2013, to report the December 31, 2012, FMV of the account.
The account number is required if you have multiple accounts for a recipient for whom you are filing more than one Form 5498-SA. Additionally, the IRS encourages you to designate an account number for all Forms 5498-SA that you file. See part L in the 2012 General Instructions for Certain Information Returns.
Enter the employee's or self-employed person's regular contributions to the Archer MSA made in 2012 and through April 15, 2013, for 2012. Report gross contributions, including any excess contributions, even if the excess contributions were withdrawn. No HSA information is to be reported in box 1.
Enter the total HSA or Archer MSA contributions made in 2012. Include any contribution made in 2012 for 2011. Also include qualified HSA funding distributions (trustee-to-trustee transfers from an IRA to an HSA under section 408(d)(9)) received by you during 2012. Any excess employer contributions (and the earnings on them) withdrawn by the employer pursuant to Notice 2008-59, Q/A 24, available at www.irs.gov/irb/2008-29_IRB/ar11.html, should not be reported as a contribution. You may, but you are not required to, report the total MA MSA contributions the Secretary of Health and Human Services or his or her representative made in 2012. Do not include amounts reported in box 4.
Enter the total HSA or Archer MSA contributions made in 2013 for 2012.
Enter rollover contributions to the HSA or Archer MSA received by you during 2012. These amounts are not to be included in box 2.
Enter the FMV of the account on December 31, 2012.
| More Online Instructions |
Obama, Top Leaders Attend National Prayer Breakfast
Photo: AP
President Barack Obama holds up a book that he was given by author and keynote speaker Eric Metaxas, at the National Prayer Breakfast in Washington, February 2, 2012.
U.S. President Barack Obama and first lady Michelle Obama gathered in Washington with top leaders Thursday for the annual National Prayer Breakfast.
In his speech, President Obama stressed that God can play a critical role in everyone's life, no matter one's religious beliefs. He said all people can benefit by listening to "our creator" and avoiding "phony religiosity."
"This is especially important now when we're facing some big challenges as a nation, our economy is making progress as we recover from the worst crisis in generations. But far too many families are still struggling to find work or make the mortgage or pay for college and in some cases even buy food," said the president.
Obama said in moments of prayer, he is reminded that faith and values play a large role in solving some of the most urgent problems the United States faces. He said if people leave their values behind, they abandon much of the "moral glue" that has held the U.S. together for centuries.
"These moments of prayer slow us down, they humble us, they remind us that no matter how much responsibility we have, how fancy our titles, how much power we think we hold, we are imperfect vessels," said Obama.
Vice President Joe Biden was in attendance, along with several top lawmakers and one of the most famous players last season in U.S. college football, Baylor University quarterback Robert Griffin the third.
The National Prayer Breakfast is hosted by members of the Senate and House of Representatives who meet each week for prayer on Capitol Hill.
Every U.S. president has attended the event since it began in the 1953. Guests have come from some 130 countries, and the guest list often includes foreign dignitaries and celebrities. Mother Teresa, former British Prime Minister Tony Blair and musician Bono have all attended the event.
Some information for this report was provided by AP.
In his speech, President Obama stressed that God can play a critical role in everyone's life, no matter one's religious beliefs. He said all people can benefit by listening to "our creator" and avoiding "phony religiosity."
"This is especially important now when we're facing some big challenges as a nation, our economy is making progress as we recover from the worst crisis in generations. But far too many families are still struggling to find work or make the mortgage or pay for college and in some cases even buy food," said the president.
Obama said in moments of prayer, he is reminded that faith and values play a large role in solving some of the most urgent problems the United States faces. He said if people leave their values behind, they abandon much of the "moral glue" that has held the U.S. together for centuries.
"These moments of prayer slow us down, they humble us, they remind us that no matter how much responsibility we have, how fancy our titles, how much power we think we hold, we are imperfect vessels," said Obama.
Vice President Joe Biden was in attendance, along with several top lawmakers and one of the most famous players last season in U.S. college football, Baylor University quarterback Robert Griffin the third.
The National Prayer Breakfast is hosted by members of the Senate and House of Representatives who meet each week for prayer on Capitol Hill.
Every U.S. president has attended the event since it began in the 1953. Guests have come from some 130 countries, and the guest list often includes foreign dignitaries and celebrities. Mother Teresa, former British Prime Minister Tony Blair and musician Bono have all attended the event.
Some information for this report was provided by AP.
Different Blood Pressure in Both Arms Linked to Heart Disease
Could be indicator of vascular risk and death
Doctors generally check their patients' blood pressure during office visits, but a new study says many are not doing it the right way - and that by doing it incorrectly, the doctors could be putting their patients' lives at risk. Cardiologist Oscar Garfein takes blood pressure readings from both of his patients' arms. That technique saved the life of one of his patients.
"I found that in one arm, it was very, very low, and in the other one, it was normal," says Garfein. "And it helped me arrive at a diagnosis of a potentially-lethal condition."
Garfein's routine is supported by a new study showing that different readings in the right and left arms could be a sign of heart disease or blood vessel problems. If the two readings of systolic blood pressure - the pressure of blood in arteries when the heart is contracting - differ by 15 or more, it could indicate a narrowing of arteries to the legs, decreased blood flow to the brain, heart disease and a 70 percent increased risk of dying from either heart attack or stroke.
If heart or blood vessel disease is diagnosed at an early stage, changing risky behavior or taking statin drugs can reduce death rates.
"You want to search for the risk factors that are associated with this," says Garfein, "such as high blood pressure or cigarette smoking or high cholesterol, and treat them very aggressively."
Many cardiologists routinely check blood pressure in both arms, but the practice is much less common on a routine doctor's visit. This study, published in The Lancet, confirms a double reading could flag an underlying vascular problem in someone who otherwise seems to be healthy.
The study shows it doesn't matter what the systolic number was, it's the difference between the two readings that matters.
"All it takes is about a minute and you can find something that really, most of the time, points to the fact that this patient has established vascular disease," says Garfein.
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