Lower FSA contribution limit may make HSAs more attractive

Previously, employers could set whatever limit they wanted on employee contributions to Flexible Spending Accounts (FSAs) for health care. But starting this year, the maximum limit is $2,500.


If you’re concerned about a lower limit and aren’t contributing to a Health Savings Account (HSA), look into whether you’re eligible — you must be covered by a qualified high-deductible health plan. As with FSA withdrawals, HSA withdrawals for qualified medical expenses are tax-free. But the HSA contribution limits are higher: $3,250 for self-only coverage and $6,450 for family coverage, plus an additional $1,000 for taxpayers age 55 or older.


HSAs also may be more beneficial because they can bear interest or be invested and can grow tax-deferred similar to an IRA. Additionally, you can carry over a balance from year to year. If you have an HSA, however, your FSA is limited to funding certain “permitted” expenses.
 
An HSA also can provide a way to do some post-Dec. 31 tax planning: You have until the April filing deadline to make your contribution. Please contact us to learn whether you could benefit from an HSA.

You might save more by deducting state and local sales taxes

For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat. But this break had expired Dec. 31, 2011.
 
Now the American Taxpayer Relief Act of 2012 has extended it for 2012 and 2013. So see if you can save more by deducting sales tax on your 2012 return. And if you’re contemplating a major purchase, you may want to make it in 2013 to ensure the sales tax deduction is available

Can recently enhanced Sec. 179 expensing reduce your 2012 taxes?

Section 179 expensing allows businesses a 100% deduction for the cost of qualifying asset purchases. Its 2012 benefits were recently enhanced by the American Taxpayer Relief Act of 2012 (ATRA).
 
Sec. 179 expensing is subject to an annual limit, which is phased out if purchases exceed a designated threshold. So if total purchases are large enough, a business might not be eligible for any Sec. 179 expensing.
 
Before ATRA, the expensing limit for 2012 was $139,000, with a $560,000 phaseout threshold. The act increases these amounts to $500,000 and $2 million, respectively (the same amounts that applied in 2010 and 2011).
 
These increases mean not only that many smaller businesses can enjoy a larger tax benefit, but also that some larger businesses that previously wouldn’t have been eligible because their asset purchases were too high may now qualify.
 
The limits had been scheduled to drop to $25,000 and $200,000, respectively, in 2013, but ATRA also extends the higher amounts through 2013.
 
Many rules apply, so please contact us to learn if you qualify on your 2012 return — or discuss whether you should plan purchases this year to benefit from the break on your 2013 return.