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Kiplinger Tax Letter Excerpts

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Tax Reform

Although things appear calm on tax reform, there is plenty going on behind the scenes.  The House is ahead of the Senate right now.  Senate taxwriters are developing issue papers on tax reform.  In addition, Finance Com. Democrats want tax overhaul to result in a net tax increase, while GOP members favor a revenue-neutral measure.  That has slowed the process there considerably.  However, House taxwriters are readying a bill on tax overhaul.  Rep. Dave Camp (R-MI), the chairman of the House Ways and Means Com., continues to vow that his committee will approve a bill before year-end.  That seems a bit of a stretch, with major fights coming up about deficit reduction, funding the federal government and raising the debt limit. Nevertheless, there's a decent chance that Chm. Camp will be able to issue a draft bill by then to get things rolling on revamping the tax code.

Benefit Plans

Several dollar ceilings on retirement plans will be higher next year. The payin limitation for defined contribution plans will increase to $52,000.  That is a $1,000 hike for Keogh plans, profit sharing plans and similar arrangements.  Retirement plan contributions can be based on up to $260,000 of salary and the benefit limit for pension plans is set to rise to $210,000 in 2014.  Some key items won’t change.  The 401(k) limit will remain $17,500, the same as this year.  Those born before 1965 can put in an additional $5,500.  These contribution limits also apply to 403(b) and 457 plans.  The ceiling on SIMPLEs will hold steady at $12,000.  Individuals age 50 or older in 2014 can put in $2,500 more. 

The 2014 payin limits for IRAs will also stay steady.  The caps remain at $5,500 plus $1,000 more for anyone who was born in 1964 or earlier.  The income caps on Roth IRA payins will go up.  Contributions phase out at AGIs of $181,000 to $191,000 for couples and $114,000 to $114,000 to $129,000 for singles.  The deduction phaseouts for regular IRAs will start at higher levels in 2014 from AGIs of $96,000 to $116,000 for couples and $60,000 to $70,000 for singles.  If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the uncovered spouse will begin at $181,000 of AGI and finish at $191,000. 

Social Security

The Social Security wage base will increase next year to $117,000, a $3,300 hike over this year’s cap.  The tax rate on employers and employees will remain at 6.2%.  The employer’s share of Medicare tax will stay at 1.45% of all pay.  The employee’s share is 1.45%, but the 0.9% Medicare surtax kicks in on singles with wages exceeding $200,000 and couples earning over $250,000.  The surtax doesn’t affect the employer’s share.  Self-employeds also will be subject to the surtax. 

Social Security benefits will rise 1.5% in 2014… slightly less than in 2013.  The earnings limits will be heading up too.  People who turn 66 next year will not lose any benefits if they earn $41,400 or less before they reach that age.  Individuals between ages 62 and 66 by the end of 2014 can make up to $15,480 before they’ll lose any benefits.  There is no earnings cap once a beneficiary turns 66.  Finally, the threshold for the nanny tax rises to $1,900 this year, a $100 boost.




Source:  The Kiplinger Tax Letter 11/8/13 - Vol. 88, No. 23

Kiplinger Tax Letter Excerpts

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Delayed Tax Season

Although the government shutdown is over, the tax system continues to feel the effects. Taxpayer service is the big loser from all this.  IRS is delaying the start of the filing season by up to two weeks...to as late as Feb. 4.  The agency had planned to start taking 2013 returns on Jan. 21, but the shutdown came during the testing process for the Service's tax return acceptance systems.  New procedures are being employed for 2013 returns to detect identity theft and help prevent refund fraud, a problem that has become much worse in recent years.  Since the debugging process was delayed, IRS decided to push back the opening date of the filing season.  In the coming weeks, the Service will speed up testing procedures in an attempt to shorten the delay.  In December, it will announce the official starting date. 

Refunds for early filers are going to be delayed due to the postponement.  The Service has been saying that in the 2013 filing season, it would not issue refunds as quickly as in past years because of the anti-identity-theft controls it’s implementing.  The delayed start will only serve to longer keep money out of the hands of the early filers.  If you expect a refund, get some of it right away by lowering your withholding for the rest of 2013.  File a new Form W-4 with your employer to claim more allowances.  That puts more money in your paycheck now.  

The April 15 return filing date will not be pushed back due to the late start.  IRS says that date is set by law.  That's the same reason that the Oct. 15 due date wasn't deferred for 2012 tax returns with valid extensions, even though IRS was closed.  

Additional funding lapses would play havoc with the filing season.  Currently, the agency is funded through Jan. 15, 2014, the due date for paying estimated taxes for the fourth quarter.  If congress can't agree on a government funding bill by then and another shutdown stretches into the filing season, processing of paper returns would be delayed and the Service wouldn't issue refunds on e-filed or paper returns.  Right now, we don't think there will be a repeat in 2014 of the federal shutdown.  

If you mailed correspondence to IRS during the shutdown, good luck.  The Service is swamped with inquiries.  While the agency was closed, taxpayers sent in 400,000 letters, on top of the 1 million items already being processed.  Those letters, many of them responses to bills for extra taxes due, sat unopened during the shutdown.  It will be a long time before IRS gets a handle on things.  Thus, it's likely that taxpayers who sent in documentation will keep getting notices from IRS.

IRAs    

Pay attention to the required distribution rules for traditional IRAs.  Individuals 70½ and over must take withdrawals by year-end or pay a penalty equal to 50% of the shortfall.  You start with your IRA balances as of Dec. 31 2012, and divide each one by the factor for your age, which you can find in IRS Pub. 590.  It also has a higher factor to use if you're more than 10 years older than your spouse.  The sum of these required withdrawal amounts can be taken from any IRA you pick (similar rules apply to retirement plan payouts, except that people owning 5% or less of the company who work past age 70½ can delay taking payouts until they retire.  Also, the minimum required distribution must be taken from each retirement plan).

If you turned 70½ this year, you can delay the distribution for 2013 to April 1, 2014.  This option doesn't apply for payouts in subsequent years and the withdrawal for 2013 must still be based on the total of your IRA balances as of Dec. 31, 2012.  Be careful if you decide to defer the distribution to 2014.  Doing so means that you will be taxed in 2014 on two payouts:  The one for 2013 that you deferred and the required withdrawal for 2014.  The doubling-up of payouts could push you into a higher tax bracket and also trigger the 3.8% Medicare surtax. 

Note the various deadlines to establish IRAs and retirement plans.  For 2013 deductions, regular IRAs must be established by April 15, 2014.  Payins are due by then as well.  A filing extension will not buy you additional time.  Nondeductible contributions to regular IRAs and Roth IRAs are also due by April 15.  Employer plans such as Keoghs must be established by Dec. 31 in order to deduct payins to them for 2013.  The self-employed who miss the deadline for 2013 can open a SEP by the due date for filing the 1040 plus any extension.  Keoghs and SEPs have the same payin cap:  20% of net self-employment earnings – the net profit shown on your Schedule C less one-half of your SECA tax liability. 


Source:  The Kiplinger Tax Letter 10/25/13 - Vol. 88, No. 22

Kiplinger Tax Letter Excerpts

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Use Up Your Gift Tax Exclusion

For 2013, you can give up to &14,000 apiece to a child, grandchild or other person without any gift tax consequences.  If you are married, your spouse also can give $14,000, so each donee can get up to $28,000 free of gift tax.


Source: The Kiplinger Tax Letter 10/11/13 - Vol. 88, No. 21 

Kiplinger Tax Letter Excerpts

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Medicare Surtax

Be aware of the new 3.8% Medicare surtax.  It applies to net investment income of single filers with modified adjusted gross incomes above $200,000 and couples over $250,000.  Marrieds filing separately have a $125,000 threshold.  Modified AGI is AGI plus tax free foreign income.  The tax is due on the smaller of net investment income or the excess of modified AGI over the thresholds.  Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income.  But tax-exempt interest and distributions from 401(k)s, IRAs, Roths and pension plans are not covered.        

Take steps to minimize the impact of the surtax if you’ll be subject to it or try to keep your income below the thresholds.  For example, use an installment sale to spread out a large gain or, if feasible, do a like-kind exchange to defer the gain.

Loss Carryforwards        

Investors with capital loss carryforwards can cull their portfolios for gains.  Any net gains they have this year, up to the carryover amount, aren't taxed at all.

Taking Losses to Offset Gains

Think about selling some poor performers.  Capital losses offset your gains, plus up to $3,000 of other income.  Any excess losses are carried over to next year.  Taking losses to offset gains can also reduce the tax bite of the 3.8% Medicare surtax.

But watch the wash-sale rule:  If you buy the same security within 30 days before or after the sale, the loss isn’t deductible.  Instead, the disallowed loss is added to the basis of the new shares.  For example, the rule can apply if you sell a mutual fund at a loss within 30 days of the date a dividend is reinvested, or if you have your IRA purchase shares that you recently sold at a loss out of your taxable account. 

Business Taxes

Bigger-ticket assets that aren't supplies also can be written off in many cases.  The limit depends on the policy that a firm uses for its financial books and records and whether it has a certified financial statement.  Those with certified statements can elect to deduct items costing the lesser of $5,000 or the amount used for purposes of their financial statements.  Firms without audited statements are capped at $500.  See www.kiplinger.com/letterlinks/materials for the complete details on the rules. 

Filing Season – Medicare Surtaxes

Filling out the 1040 will get a tad more complicated for upper-incomers, thanks to two Medicare surtaxes that took effect for 2013:  A 3.8% levy on net investment income and a 0.9% levy on wages and self-employment income.  Folks subject to these surtaxes will figure what they owe on Forms 8959 and 8960 and then transfer that amount to a separate line on the back of the 1040 form. 


Source:  The Kiplinger Tax Letter 9/27/13 – Vol. 88, No. 20

Kiplinger Tax Letter Excerpts

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Health Care Reform

A key part of health reform takes effect Jan. 1:  Individuals without insurance will owe a tax.  Although the Obama administration delayed to 2015 the rule that firms with 50 or more full-time employees must provide affordable heath insurance to workers or pay a stiff fine, the individual mandate's start date wasn't deferred, despite a push for this by the GOP.  Now IRS has issued rules on when this tax applies.

Folks must have minimum essential coverage for themselves and their dependents to avoid the tax.  This includes coverage provided by an employer that meets federal requirements, coverage purchased through an exchange and federal coverage such as Medicare, Medicaid, Tricare and veterans coverage.

Foreign Bank Accounts

It's going to get even harder to keep IRS from learning about foreign accounts, now that the Justice Dept. and the government of Switzerland have entered into a pact.  It allows Swiss banks to come forward voluntarily, pay substantial monetary fines, disclose details on accounts held by U.S. persons and comply with other requirements in exchange for avoiding criminal prosecution by U.S. authorities.  A key component of the accord requires participating banks to provide information that will help the U.S. follow the money trail to more Swiss banks and to banks in other foreign countries.  Banks currently under criminal investigation can't take part in this amnesty program.

Source:  The Kiplinger Tax Letter 9/13/13 - Vol. 88, No. 19

2013 Tax Planning Summary from RIA

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While most tax practitioners are aware of the many tax changes that are effective for the 2013 tax year, many taxpayers may not be. They may be surprised to learn that the tax landscape has shifted precipitously for those who find themselves on the wrong side of a new divide between “middle class” and “higher earners.” These higher earners are now subject to an array of new taxes, higher rates, and stringent deduction limits.

Effective in 2013, new rules impose significantly higher taxes on higher earners, increasing the importance of tax awareness and tax planning. Under the Affordable Care Act (P.L. 111-148, 3/23/2010 and P.L.111-152, 3/30/2010, collectively) there is a higher payroll tax and a surtax on the unearned income of higher-income individuals. Under the American Taxpayer Relief Act of 2012 (P.L. 112-240, 1/2/2013), higher tax rates apply to ordinary income, capital gains and dividends, while at the same time limitations are imposed on the use of the personal exemption and itemized deductions. This article highlights these changes.

Brave new tax world. For tax years beginning after Dec. 31, 2012, the following rules apply:

Increased payroll tax for high-earning workers and self-employed taxpayers. An additional 0.9% hospital insurance tax (i.e., a component of the Federal Insurance Contributions Act (FICA) payroll tax imposed on wages) applies to wages received with respect to employment in excess of: $250,000 for joint returns; $125,000 for married taxpayers filing a separate return; and $200,000 in all other cases. The additional 0.9% tax also applies to self-employment income for the tax year in excess of the above figures.

Surtax on unearned income of higher-income individuals. An unearned income Medicare contribution tax is imposed on individuals, estates, and trusts. For an individual, the tax is 3.8% of the lesser of: (1) net investment income or (2) the excess of modified adjusted gross income over the threshold amount ($250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others). For surtax purposes, gross income doesn't include excluded items, such as interest on tax-exempt bonds, veterans' benefits, and excluded gain from the sale of a principal residence.

Higher individual income tax rates apply to higher-income taxpayers. The income tax rates for most individuals stay at 10%, 15%, 25%, 28%, 33% and 35%, as in 2012. However, a new 39.6% rate applies for 2013 for income above $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 for married taxpayers filing separately. These dollar amounts are inflation-adjusted for tax years after 2013.

Capital gain and dividend rates rise for higher-income taxpayers. The top rate for capital gains and dividends rises to 20% for 2013 (up from 15% in 2012) for taxpayers with incomes exceeding $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 for married taxpayers filing separately. In comparison, for taxpayers whose ordinary income is generally taxed at a rate below 25%, capital gains and dividends are subject to a 0% rate, and taxpayers who are subject to a 25%-or-greater rate on ordinary income, but whose income levels fall below the above thresholds, are subject to a 15% rate on capital gains and dividends. Further, the rate under the alternative minimum tax—a tax system separate from the regular tax, designed to limit certain tax benefits—also rises from 15% in 2012 to 20% in 2013 for capital gains and qualified dividends otherwise subject to the 39.6% regular tax rate.

Personal exemption is limited for high earners. There is a personal exemption phaseout (PEP) for 2013 with a starting threshold of $300,000 for joint filers and surviving spouses; $275,000 for heads of household; $250,000 for single filers; and $150,000 for married taxpayers filing separately. Under the phaseout, the total amount of exemptions that can be claimed by a taxpayer is reduced by 2% for each $2,500 (or portion thereof) by which the taxpayer's adjusted gross income exceeds the above threshold. These dollar amounts are inflation-adjusted for tax years after 2013.

Itemized deductions are limited for high earners. There is a limit on itemized deductions for 2013 (i.e., the “Pease” limitation) with a starting threshold of $300,000 for joint filers and surviving spouses; $275,000 for heads of household; $250,000 for single filers; and $150,000 for married taxpayers filing separately. Thus, for taxpayers subject to the “Pease” limitation, their itemized deductions are reduced by 3% of the amount by which the taxpayer's adjusted gross income exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions. These dollar amounts are inflation-adjusted for tax years after 2013.

While there is a real prospect that high earners will pay more taxes this year, tax practitioners and taxpayers should both keep in mind that it's almost never too late to better a taxpayer's tax situation, minimizing taxes to the greatest extent possible. Year-end tax planning may be especially productive this year because timely action could nail down a host of “extender” tax breaks—individual and business tax provisions that are due to expire at year's end.

In addition, other tax moves may prove advantageous. Many taxpayers can still better their tax position by acting now to make the most of enhanced expensing and depreciation; keep adjusted gross income (AGI) down to avoid reduction (or elimination) of the many tax breaks that phase out over higher levels of AGI; make the best tax use of losses; and take full advantage of the available tax credits.

Source: RIA Checkpoint October 18, 2013

Tax Season to be Delayed Again in 2014

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On the heels of finalizing the compressed 2013 tax filing season, the IRS announced expected delays in the upcoming tax season as well.  According to a release issued October 22, the government shutdown has put the IRS 2014 tax season preparations behind schedule.  As a result, the earliest the IRS anticipates being able to accept tax returns is late January to early February.  The notice stresses that paper returns mailed in prior to the "official" start of the filing season will not be processed, and that e-filing is still the preferred method and will result in faster refunds.

Source:  AICPA Journal of Accountancy 10/25/2013

Notice of Health Insurance Exchanges

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As you may know, the health care law – the Patient Protection and Affordable Care Act (PPACA) or ObamaCare – requires most individuals (including children and other dependents) to carry health insurance, beginning January 1, 2014.  The law also requires the establishment of a health insurance exchange in all states by October 1, 2013.  The goal is that exchanges, working with private insurers, will act as a marketplace and provide “one-stop shopping” for individuals and families who may need health insurance or who seek less expensive coverage.  A companion program – the Small Business Health Options Program or SHOP Exchange – will assist small businesses that want to offer insurance to their employees.

The Department of Labor indicates employers “should” give the required notices of the health insurance exchange to their employees by October 1, 2013.  This notice requirement applies to employers who are engaged in interstate commerce and have annual gross receipts of $500,000 or greater.  The notice requirement also applies to hospitals, schools, and government agencies.  The IRS has indicated they will not levy penalties against employers who fail to comply with this notice deadline.

Employers should provide notice to their existing employees by October 1, 2013, and must provide notice to new employees hired on or after October 1, 2013.  Each employee must receive notice, regardless of the employee’s health plan enrollment status and part- or full-time employment status.  Notice must be provided in writing or electronically to each employee.

The notice must inform the employee:
  1. Of the existence of the exchange, the services provided by the exchange, and contact information for the exchange.
  2. That he or she may be eligible for a premium tax credit under the Internal Revenue Code if (a) the employer does not offer a health plan or the health plan offered by the employer pays less than 60 percent of the total allowed costs of health benefits offered to the employee; and (b) the employee chooses to purchase health insurance through the exchange.
  3. That an employee who purchases health insurance through an exchange may lose the employer’s (tax-free) contribution to the cost of health insurance offered by the employer.
To satisfy this requirement, the Department of Labor has provided model notices on its website at http://www.dol.gov/ebsa/healthreform/.  The website provides one model for employers who offer a health plan to some or all of their employees, and another model for employers who do not offer a health plan.  Employers may modify the notice, as long as it meets the content requirements described above.
Source: Department of Labor and CCH Intelliconnect

What is My State's Health Insurance Marketplace?

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What is the marketplace in my state?: Depending on your State you will either use healthcare.gov or the health insurance marketplace your State has created to shop for Federally regulated and subsidized health insurance. The following is a list of State's and their official marketplaces. Please note that while they have unique names they are all the same thing, an online marketplace for you to shop for affordable, quality health insurance.

Find your State's Health Insurance Marketplace using the chart below from ObamaCareFacts.com:


State Name
Official Site to Buy Health Insurance: The Name of Your State's Health Insurance Exchange Marketplace


Alabama
Alaska
Arizona
Arkansas
Delaware
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Louisiana
Maine
Michigan
Mississippi
Missouri
Montana
Nebraska
New Hampshire
New Jersey
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Virginia
West Virginia
Wisconsin
Wyoming
You’ll use the official website HealthCare.gov to apply for coverage, compare plans, and enroll. Specific plans and prices will be available on October 1, 2013, when Marketplace open enrollment begins. Coverage can start as soon as January 1, 2014.
If you live in California, Covered California is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Covered California website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit Covered California now to learn more. 
Colorado
If you live in Colorado, Connect for Health Colorado is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Connect for Health Colorado website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013.Visit Connect for Health Colorado now to learn more.
Connecticut
If you live in Connecticut, Access Health CT is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Access Health CT website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit Access Health CT now to learn more.
District of Columbia
If you live in the District of Columbia, DC Health Link is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the DC Health Link website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit DC Health Link now to learn more.
Hawaii
If you live in Hawaii, the Hawaii Health Connector is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Hawaii Health Connector website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit Hawaii Health Connector now to learn more.
Idaho 
If you live in Idaho, Your Health Idaho is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Your Health Idaho website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit Your Health Idaho now to learn more.  
Kentucky
If you live in Kentucky, the Kentucky Health Benefit Exchange is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Kentucky Health Benefit Exchange website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit the Kentucky Health Benefit Exchange now to learn more.
Maryland
If you live in Maryland, the Maryland Health Connection is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Maryland Health Connection website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit the Maryland Health Connection now to learn more.
Massachusetts
If you live in Massachusetts, the Health Connector is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Health Connector website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit the Health Connector now to learn more. 
Minnesota
If you live in Minnesota, MNsure is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the MNsure website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit MNsure now to learn more.
Nevada
If you live in Nevada, the Nevada Health Link is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Nevada Health Link website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit the Nevada Health Link now to learn more.
New Mexico
If you live in New Mexico, BeWellNM is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the BeWellNM website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit BeWellNM now  to learn more.
New York
If you live in New York, New York State of Health is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the New York State of Health website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit New York State of Health now to learn more.
Oregon
If you live in Oregon, Cover Oregon is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Cover Oregon website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit Cover Oregon now to learn more.
Rhode Island
If you live in Rhode Island, HealthSource RI is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use HealthSource RI website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit HealthSource RI now to learn more.
Utah
You’ll use the official website HealthCare.gov to apply for coverage,compare plans, and enroll. Specific plans and prices will be available on October 1, 2013, when Marketplace open enrollment begins. Coverage can start as soon as January 1, 2014.
For small businesses and their employees: In Utah, your Small Business Health Options Program (SHOP) is Avenue H. Instead of HealthCare.gov, you’ll use the Avenue H website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit Avenue H now to learn more.
Vermont
If you live in Vermont, Vermont Health Connect is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Vermont Health Connect website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit Vermont Health Connect now to learn more.
Washington
If you live in Washington, the Washington Healthplanfinder is the Health Insurance Marketplace to serve you. Instead of HealthCare.gov, you’ll use the Washington Healthplanfinder website to apply for coverage, compare plans, and enroll. You can apply as early as October 1, 2013. Visit the Washington Healthplanfinder now to learn more.
American Samoa
Guam
Northern Mariana Islands
Puerto Rico
Virgin Islands
You’re not eligible to use the Marketplace to apply for health insurance. Check with your territory’s government offices to learn about health coverage options.

Source: ObamaCareFacts.com

ObamaCare Info as of September 25, 2013

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Still much is unknown about how ObamaCare will affect you.
The employer notice to employees on or before October 1, 2013:

  • The Department of labor indicates employers "should" give the required notices to their employees on or before October 1, 2013.
  • The IRS has indicated they will not levy penalties against employers who miss the October 1, 2013 deadline.
When does ObamaCare actually become mandatory:
  • January 1, 2014 for individuals.  However, many waivers have been granted.
Health insurance costs:
  • Rates for health insurance will be based on your age and where you live.  With wide variations.
  • Generally speaking, rates for young people will be greater than rates are now for the same coverage.  
  • Generally speaking, rates for older people will be less that rates are now for the same coverage.
How do rates compare with previous rates?  (From Forbes 9/25/2013 article by Carolyn McClanahan)  
  • If you live in a state where individual insurers already sold robust policies and promised guaranteed issue coverage, your rates are lower. If you live in a state where individual insurers cherry picked healthy people or didn’t provide great coverage, three things happen:
    1. If you are healthy, young, and in that “desirable” group for insurance companies – your premiums go up a hefty amount.
    2. If you are unhealthy, but still able to get coverage – your costs most likely go down significantly.
    3. If you are unhealthy and couldn’t get coverage in the past – good news! You can now get coverage and price is not based on health.
Source: Forbes 9/25/2013

American Taxpayer Relief Act

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After weeks, indeed months of proposals and counter-proposals, seemingly endless negotiations and down-to-the-wire drama, Congress has passed legislation to avert the tax side of the so-called "fiscal cliff." The American Taxpayer Relief Act permanently extends the Bush-era tax cuts for lower and moderate income taxpayers, permanently “patches” the alternative minimum tax (AMT), provides for a permanent 40-percent federal estate tax rate, renews many individual, business and energy tax extenders, and more. In one immediately noticeable effect, the American Taxpayer Relief Act does not extend the 2012 employee-side payroll tax holiday.

The American Taxpayer Relief Act is intended to bring some certainty to the Tax Code. At the same time, it sets the stage for comprehensive tax reform, possibly in 2013. Moreover, the new law creates important planning opportunities for taxpayers, which we can discuss in detail.

Individuals

Unlike the two-year extension of the Bush-era tax cuts enacted in 2010, the debate in 2012 took place in a very different political and economic climate. If Congress did nothing, tax rates were scheduled to increase for all taxpayers at all income levels after 2012. President Obama made it clear that he would veto any bill that extended the Bush-era tax cuts for higher-income individuals. The President’s veto threat gained weight after his re-election. Both the White House and the GOP realized that going over the fiscal cliff would jeopardize the economic recovery, and the American Taxpayer Relief Act is, for the moment, their best compromise.

Tax rates. The American Taxpayer Relief Act extends permanently the Bush-era income tax rates for all taxpayers except for taxpayers with taxable income above certain thresholds: $400,000 for single individuals, $450,000 for married couples filing joint returns, and $425,000 for heads of households. For 2013 and beyond, the federal income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. In comparison, the top rate before 2013 was 35 percent. The IRS is expected to issue revised income tax withholding tables to reflect the 2013 rates as quickly as possible and provide guidance to employers and self-employed individuals.

Additionally, the new law revives the Pease limitation on itemized deductions and personal exemption phase out (PEP) after 2012 for higher-income individuals, but at revised thresholds. The new thresholds for being subject to both the Pease limitation and PEP after 2012 are $300,000 for married couples and surviving spouses, $275,000 for heads of households, $250,000 for unmarried taxpayers; and $150,000 for married couples filing separate returns.

Capital gains. The taxpayer-friendly Bush-era capital gains and dividend tax rates are modified by the American Taxpayer Relief Act. Generally, the new law increases the top rate for qualified capital gains and dividends to 20 percent (the Bush-era top rate was 15 percent). The 20-percent rate will apply to the extent that a taxpayer’s income exceeds the $400,000/$425,000/$450,000 thresholds discussed above. The 15-percent Bush-era tax rate will continue to apply to all other taxpayers (in some cases, zero percent for qualified taxpayers within the 15-percent-or-lower income tax bracket).

Payroll tax cut. The employee-side payroll tax holiday is not extended. Before 2013, the employee-share of OASDI taxes was reduced by two percentage points from 6.2 percent to 4.2 percent up to the Social Security wage base (with a similar tax break for self-employed individuals). For 2013, the two-percent reduction is no longer available and the employee-share of OASDI taxes reverts to 6.2 percent. The employer-share of OASDI taxes remains at 6.2 percent. In 2012, the payroll tax holiday could have saved a taxpayer up to $2,202 (taxpayers earning at or above the Social Security wage base for 2012). As a result of the expiration of the payroll tax holiday, everyone who receives a paycheck or self-employment income will see an increase in taxes in 2013.

AMT. In recent years, Congress routinely “patched” the AMT to prevent its encroachment on middle-income taxpayers. The American Taxpayer Relief Act patches permanently the AMT by giving taxpayers higher exemption amounts and other targeted relief. This relief is available beginning in 2012 and going forward. The permanent patch is expected to provide some certainty to planning for the AMT. No single factor automatically triggers AMT liability, but some common factors are itemized deductions for state and local income taxes; itemized deductions for miscellaneous expenditures, itemized deductions on home equity loan interest (not including interest on a loan to build, buy, or improve a residence); and changes in income from installment sales. Our office can help you gauge if you may be liable for the AMT in 2013 or future years.

Child tax credit and related incentives. The popular $1,000 child tax credit was scheduled to revert to $500 per qualifying child after 2012. Additional enhancements to the child tax credit also were scheduled to expire after 2012. The American Taxpayer Relief Act makes permanent the $1,000 child tax credit. Most of the Bush-era enhancements are also made permanent or extended. Along with the child tax credit, the new law makes permanent the enhanced adoption credit/and income exclusion; the enhanced child and dependent care credit, and the Bush-era credit for employer-provided child care facilities and services.

Education incentives. A number of popular education tax incentives are extended or made permanent by the American Taxpayer Relief Act. The American Opportunity Tax Credit (an enhanced version of the Hope education credit) is extended through 2017. Enhancements to Coverdell education savings accounts, such as the $2,000 maximum contribution, are made permanent. The student loan interest deduction is made more attractive by the permanent suspension of its 60-month rule (which had been scheduled to return after 2012). The new law also extends permanently the exclusion from income and employment taxes of employer-provided education assistance up to $5,250 and the exclusion from income for certain military scholarship programs. Additionally, the above-the-line higher education tuition deduction is extended through 2013, as is the teachers’ classroom expense deduction.

Charitable giving. Congress has long used the tax laws to encourage charitable giving. The American Taxpayer Relief Act extends a popular charitable giving incentive through 2013: tax-free IRA distributions to charity by individuals age 70 ½ and older up to maximum of $100,000 for qualified taxpayer per year. A special transition rule allows individuals to re-characterize distributions made in January 2013 as made on December 31, 2012. The new law also extends for businesses the enhanced deduction for charitable contributions of food inventory.

Estate tax. Few issues have complicated family wealth planning in recent years as has the federal estate tax. Recent laws have changed the maximum estate tax rate multiple times. Most recently, the 2010 Tax Relief Act set the maximum estate tax rate at 35 percent with an inflation-adjusted exclusion of $5 million for estates of decedents dying before 2013. Effective January 1, 2013, the maximum federal estate tax will rise to 40 percent, but will continue to apply an inflation-adjusted exclusion of $5 million (projected to be $5.25 million in 2013). The new law also makes permanent portability between spouses, which effectively raises their combined exemption amount to $10 million), as well as some Bush-era technical enhancements to the estate and generation-skipping transfer taxes.

Businesses

The business tax incentives in the new law, while not receiving as much press as the individual tax provisions, are valuable. Two very popular incentives, bonus depreciation and small business expensing, are extended, as are many business "tax extenders."

Bonus depreciation/small business expensing. The new law renews 50-percent bonus depreciation through 2013 (2014 in the case of certain longer period production property and transportation property). Code Sec. 179 small business expensing is also extended through 2013 with a generous $500,000 expensing allowance and a $2 million investment limit. Without the new law, the expensing allowance was scheduled to plummet to $25,000 with a $200,000 investment limit.

Small business stock. To encourage investment in small businesses, the tax laws in recent years have allowed non-corporate taxpayers to exclude a percentage of the gain realized from the sale or exchange of small business stock held for more than five years. The American Taxpayer Relief Act extends the 100-percent exclusion from the sale or exchange of small business stock through 2013.

Tax extenders. A host of business tax incentives are extended through 2013. They include the research tax credit, Work Opportunity Tax Credit (WOTC), Indian employment credit, New Markets Tax Credit, tax incentives for empowerment zones, and more.

Energy

For individuals and businesses, the new law extends some energy tax incentives. The Code Sec. 25C credit, which rewards homeowners who make energy efficient improvements, with a tax credit is extended through 2013. Businesses benefit from the extension of the Code Sec. 45 production tax credit for wind energy, credits for biofuels, credits for energy-efficient appliances, and many more.

Looking ahead

The negotiations and passage of the new law are likely a dress rehearsal for comprehensive tax reform during President Obama’s second term. Both the President and the GOP have called for making the Tax Code more simple and fair for individuals and businesses. The many proposals for tax reform include consolidation of the current individual income tax brackets, repeal of the AMT, moving the United States from a worldwide to a territorial system of taxation, and a reduction in the corporate tax rate. Congress and the Obama Administration also must tackle sequestration, which the American Taxpayer Relief Act delayed for two months. All this and more is expected to keep federal tax policy in the news in 2013. Our office will keep you posted on developments.

If you have any questions about the American Taxpayer Relief Act, please contact our office. We can schedule an appointment to discuss how the changes in the new law may be able to maximize your tax savings.

"...the new law creates important planning opportunities for taxpayers..."

Source: CCH Practitioners' Corner

Cracking the 2013 Tax Code

Posted by Predovich & Company

by Bill Bischoff for the Wall Street Journal 1/3/2013

Early in the morning of January 1, Congress finally got around to dealing with the tax part of the fiscal cliff drama by passing what is inaccurately named the American Taxpayer Relief Act of 2012. Thanks to the demise of the so-called payroll tax holiday, all workers will pay higher taxes this year, but the new law cancels federal income tax increases that would have resulted in added misery for just about everyone. The bad news is that higher-income folks will face higher rates.

Here’s a detailed summary of the most-important changes for individual taxpayers.

Payroll Tax Holiday Is Dead: For 2010-2012, the Social Security tax withholding rate on your salary was temporarily reduced from the normal 6.2% to 4.2%. If you’re self-employed, the Social Security tax component of the self-employment tax was reduced from the normal 12.4% to 10.4%. Last year, this so-called payroll tax holiday could have saved one person up to $2,202 or a working couple up to $4,404. Somewhat surprisingly, the new law does not extend the holiday through 2013. (For this year, the Social Security tax can hit up to $113,700 of salary or self-employment income.)

Rates on Ordinary Income: For most individuals, the federal income tax rates for 2013 will be the same as last year: 10%, 15%, 25%, 28%, 33%, and 35%. However, the maximum rate for higher-income folks increases to 39.6% (up from 35%). This change only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, heads of households with income above $425,000, and married individuals who file separate returns with income above $225,000.

Rates on Long-Term Gains and Dividends: The tax rates on long-term capital gains and dividends will also remain the same as last year for most individuals. However, the maximum rate for higher-income folks increases to 20% (up from 15%). This change only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, heads of households with income above $425,000, and married individuals who file separate returns with income above $225,000. Remember: these higher-income folks can also get socked with the new 3.8% Medicare surtax on investment income, which can result in a maximum 23.8% federal tax rate on long-term gains and dividends.

Personal and Dependent Exemption Deduction Phase-Out: The last time we saw a phase-out rule for personal and dependent exemption deductions was 2009. Sadly, the phase-out deal is back. As a result, your personal and dependent exemption write-offs can be reduced or even completely eliminated. Phase-out starts at the following adjusted gross income (AGI) thresholds: $250,000 for single filers, $300,000 for married joint-filing couples, $275,000 for heads of households, and $150,000 for married individuals who file separate returns.

Source: Wall Street Journal 1/3/2013

8 Tax Changes Coming with the Fiscal Cliff Deal

Posted by Predovich & Company


1. Beware the $740-a-year 'stealth' tax

While the fiscal deal makes permanent the Bush-era tax cuts, thus averting the biggest tax increases that would have gone into effect in 2013, it didn't extend the second biggest one.

Congress quietly let the temporary Social Security payroll tax cut expire. That means that the 2-percentage-point cut in the payroll tax that wage earners have enjoyed over the past two years ratchets back to its normal 6.2 percent level.

That represents an extra $115 billion of revenue a year for the federal government, according to the Tax Policy Center, or about 22 percent of the total tax rise had all the "fiscal cliff" tax provisions taken effect.

The increase in the payroll tax would raise the tax bill for the lowest 20 percent of income earners by 1.1 percentage points, 1.3 percentage points for middle 20 percent, and 0.8 percent for the top 20 percent (who earn more from capital returns than from wages), the Tax Policy Center estimates.

The impact on the average taxpayer: an extra $740 a year.

2. Highest wage earners will pay more income tax

The one group that didn't escape an increase in income tax rates were the 0.7 percent of Americans who earn more than $400,000 a year as single taxpayers (or more than $450,000 as joint filers). For them, marginal income tax rates will rise substantially – from 35 percent to 39.6 percent.

Three-quarters of taxpayers who make between $500,000 and $1 million would pay an average $10,000 extra in 2013, according to the Tax Policy Center. Some 98 percent of those earning $1 million or more would owe $125,000 more, on average.

The bill also restores caps on itemized deductions and phases out the personal exemption for those individuals making more than $250,000 ($300,000 for couples).

3. Estate taxes go up

The tax rate on estate taxes will rise to 40 percent, up from 35 percent in 2012. The first $5 million of an individual's estate will be exempted ($10 million for family estates), the same as in 2012.

The deal averts the "fiscal cliff" provisions, which will have lowered the exemption to $1 million and increased the tax rate to 55 percent. And the exemption levels would be indexed to inflation, so gradually even bigger estates would avoid the tax.

4. Taxes rise on stock returns for the wealthy

The tax rate on dividends and capital gains above $400,000 ($450,000 for families) would rise from 15 percent to 20 percent. This would hit the wealthiest Americans, who tend to earn more from their capital investments than from wages and salaries – and raise only a few billion dollars in tax revenue in 2013.

When analyzing a similar provision for a broader set of Americans – those with dividends and capital gains above $200,000 ($250,000) – the Tax Policy Center estimated it would bring in only $8 billion.

That's not all: Courtesy of the 2010 health-care law, high-income taxpayers will be charged a new 3.8 percent tax on their investment income.

5. The alternative minimum tax drama ends

Every year, some 30 million middle- and upper-middle income earners waited to find out if Congress would extend the alternative minimum tax (AMT) patch, which would keep their tax rates from rising rapidly. Congress always did, but often at the last minute and sometimes even retroactively. The new deal ends that annual drama by adjusting annually the AMT thresholds for inflation.

6. Child, earned income, college tuition tax credits extended

President Obama's 2009 stimulus package helped low-income families by boosting the child credit and the earned income tax credit. Tuition tax credits were also expanded. Those provisions, which were due to expire in 2013, have been extended for another five years.

7. Extended unemployment insurance benefits preserved

The fiscal deal continues the extended unemployment insurance benefits for the long-term unemployed for an additional year. In some hard-hit states, that coverage provided aid for up to 99 weeks. That coverage was due to expire Jan. 1 and would have caused jobless aid to expire after 26 weeks of state unemployment benefits.

By one estimate, the new deal from Congress will keep some 2 million jobless from being cut off immediately and another 1 million from losing the aid early this year.

8. 401(k) conversions to Roth IRAs made easier

By easing the rules regarding conversions of 401(k), 403(b), and similar retirement plans, Congress hopes to encourage taxpayers to roll over their taxable retirement funds into nontaxable Roth IRAs. Under current law, taxpayers can only roll their 401(k) plans into Roth IRAs for specific reasons, such as a job change, retirement, or reaching 59-1/2. The new deal eases those restrictions, with the hope that more taxpayers would make the move.

Since rolling a 401(k) into a Roth is a taxable event, the looser rules are expected to generate immediate federal revenue. Congress wants to offset some of the $24 billion lost because of a two-month delay in the big federal spending cuts across the board that the "fiscal cliff" would have enforced beginning Jan. 1.

But it's a short-term revenue boost at the expense of long-term tax revenues that would come from 401(k) funds, which accumulate tax-free but are taxable once they're withdrawn from the account.

Source: Business Insider 1/2/2013

House Speaker John Boehner, R-Ohio, was forced to abandon his "fiscal cliff" proposal when it became clear there wasn't enough support to pass the measure in the Republican-controlled House of Representatives. The failure of "Plan B" raises the level of uncertainty about whether Republican leaders and President Barack Obama can reach a deal before the year ends.

Source: American Institute of CPAs, CPA Letter Daily, 12/21/2012

2012 & 2013 Individual Tax Changes

Posted by Predovich & Company


As a taxpayer, you are facing what is perhaps an unprecedented set of circumstances – the expiration of the tax rates enacted in 2001, the expiration of more than 150 tax provisions and a tax increase of more than $500 billion overall – that could result in a much higher tax liability when you file your next return.
If Congress and the President do not make changes, the combined effect could result in an average tax hike of around $3,500 per household for up to 90% of Americans. I want to inform you of possible tax increases and loss of tax benefits that could negatively impact your finances.  Give me a call as there may be some steps (as mentioned below) you can take immediately to soften the impact on your bottom line.

We have come to the edge of a “fiscal cliff,” as it is being called, because of several events that will have an impact all at once:
  • Tax cuts enacted during the Bush Administration are set to expire at year-end.
  • A new 3.8% Medicare surtax on some investment income will become effective Jan. 1, 2013.
  • A 2% reduction in the payroll taxes that fund Social Security expires on Dec. 31, 2012.
  • Changes to some itemized deductions could increase the rate on ordinary income to an effective rate that is as much as 44.6% for some taxpayers.
  • A possible increase on long-term capital gains could push rates from 15% to 20% and the rate on qualified dividends could jump to an effective 44.6% from 15% today.
  • A rise in the estate tax rate to 55% from 35% and a cut in the exclusion amount for what is subject to estate taxes to $1 million from $5.12 million.
  • A reduction in the Alternative Minimum Tax Exemption will impact tens of millions of taxpayers.
  • Potential across-the-board budget cuts in both defense and non-defense spending.

I am recommending that clients take a two-pronged approach that involves addressing many of the possible changes directly while also making use of all options for deductions and credits, or other tax-advantaged opportunities to lower their taxable income. Planning for these changes should begin now, since it may involve significant modifications in your tax strategy. 

Key Elements of US "Fiscal Cliff" Post-Elections

Posted by Predovich & Company


After Tuesday's elections, Congress and the White House will face tough decisions on tax rates, tax breaks and budget cuts in a convergence of high-stakes deadlines that Federal Reserve Chairman Ben Bernanke dubbed a 'massive fiscal cliff.'

The most urgent U.S. economic issue will be finding a way down from the 'fiscal cliff' without plunging the U.S. economy over the edge.

Failure to safely negotiate it could trigger another recession, economic studies have forecast. Here are key deadlines and issues facing lawmakers:

TAX MEASURES

*Bush ordinary income tax cuts. On Dec. 31, low individual income tax rates enacted in 2001 under former President George W. Bush are set to expire. President Barack Obama and Republicans extended them at the end of 2010 for two years.

If Congress does nothing, the income tax brackets will change to 15, 28, 31, 36 and 39.6 percent, from the present levels of 10, 15, 25, 28, 33 and 35 percent.

Obama wants to extend the Bush rates for everyone, except for annual income that rises above $200,000 per individual, or $250,000 per family. For income above that $200,000/$250,000 threshold, he backs a return to the higher, pre-2001 tax rates.

Republican presidential nominee Mitt Romney wants to preserve the Bush-era income tax rates on all income levels.

*Bush investment income tax cuts. Bush and Congress in 2003 cut taxes on capital gains and dividends, which mostly affect high-income taxpayers. These cuts are set to expire at year-end.

If no action is taken, the long-term capital gains tax rate will rise to 20 percent from 15 percent for the top four tax brackets. At the bottom, they will rise to 10 percent from zero.

Obama wants to let the capital gains tax rise to 20 percent from 15 percent for income above the $200,000/$250,000 level. Tax on gains below that would still top out at 15 percent.

Romney wants to keep the 15-percent gains tax cap for high-earners and end the tax entirely for income below $200,000.

Without action from Congress, the dividend tax rate will rise to the ordinary income tax rates for each tax bracket, or as high as 39.6 percent for top earners. Dividends are now taxed at 15 percent for the top four brackets and zero at the bottom.

Obama would hold the 15 percent dividend rate cap for most people, but let it rise on income above the $200,000/$250,000 threshold, to the 36 percent or 39.6 percent rates.

Romney wants to eliminate completely the dividend tax on individual income below $200,000, while preserving the Bush top rate of 15 percent on income exceeding that.

*Obama healthcare tax. Regardless of what happens with the fiscal cliff, investment income above $200,000/$250,000 will be subject to a new 3.8 percent tax under Obama's health care law.

*Alternative minimum tax. The AMT - which ensures rich people pay some tax - expired at the end of 2011. That has not had an impact yet because 2012 tax returns have not been filed. The tax is not indexed for inflation. So it is routinely "patched" to prevent tens of millions of upper-middle-class taxpayers from having to start paying it. Both Republicans and Democrats agree on the need for another patch soon.

*Tax extenders. Dozens of individual and business tax breaks expired at the end of 2011, including the popular research and development tax credit. There is wide support for extending them again, but businesses will be watching for any faltering.

*Payroll tax. A cut in the payroll tax that funds the Social Security pension program was extended earlier this year, in an effort to boost the economy. The current 4.2 percent rate paid by about 160 million workers, down from the previous 6.2 percent rate, expires on Dec. 31. Bipartisan support for letting the tax cut expire seemed solid on Capitol Hill weeks ago, but may be softening among some Democrats who are talking about extension.

*Estate tax. The estate tax, which applies to assets passed onto heirs, currently stands at 35 percent, after an exemption level of $5 million. With no action, the tax will rise to 55 percent, after excluding the first $1 million of value.

Obama wants to raise the tax to 45 percent, with a $3.5 million exemption; Romney wants to eliminate the tax completely.

BUDGET MEASURES

*Automatic spending cuts. In a deal last year to raise the federal debt ceiling, Obama and Congress agreed to $1.2 trillion in across-the-board cuts in federal programs if lawmakers failed to reach a deficit-cutting deal by Jan. 2. They failed.

Now lawmakers fear the cuts, known as a "sequester," could harm the economy and many are working to prevent them.

*Unemployment benefits. Millions of people have been exhausting their government jobless benefits during the economic downturn. Congress has extended the benefits several times. Another deadline comes at year-end. Many Republicans want the extensions to stop, saying they discourage job-hunting.

*"Doc fix." Because of an outdated formula in the law, government payments to doctors who treat patients on Medicare, the U.S. health program for the elderly and disabled, are routinely underestimated. If Congress doesn't fix the situation by the end of the year, these doctors face a double-digit cut to their payments, which could lead them to drop Medicare patients.

DEBT CEILING

Treasury Secretary Tim Geithner has said the United States will likely hit its $16.4 trillion borrowing limit after the presidential elections, but before the end of the year.

Geithner has said the Treasury has tools to push out that deadline some time into early 2013 and analysts expect these measures could last until some time in February. That could force the Treasury to again use special accounting measures to delay the increase, which could draw further attacks from Republicans. After months of drama that exasperated voters and markets, Congress in August passed a deal to raise the ceiling. (Additional reporting by Richard Cowan; Editing by Stacey Joyce)

Source: RIA Checkpoint Newsstand 11/5/2012