Janell A. Israel & Associates

1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817

April 2010 Tax Newsletter

What's new in taxes:

Tax Deadline Update-General Excise Tax, Transient Accommodations Tax

Important Notice if you are required to file the above tax returns

Among several substantive changes recently enacted by the Hawaii Department of Taxation, the most important change affects the due date for general excise tax filling, and payment due dates for monthly, quarterly and semi-annual filers.

The due date changed from the last day of the month to the 20^th day of the month following the end of the applicable reporting period. General excise tax and or transient accommodations tax for the period ended December 31, 2009 are no longer due on January 31, 2010 – they are now due on January 20, 2010. Penalties for late fillings are 5% per month (up to 25%) plus interest charged at a rate of 8% annually.

If you work with us or another agent to prepare your above mentioned tax returns please be aware of the new deadline. This will require you to provide your information to us no later than the 10^th day of the month at the end of the reporting period so that we can provide you the necessary forms in time to allow for timely filing and payment. You may also want to talk with us about the electronic filing and paying of your taxes.

Health Care Reform Legislation Passes

Congress passed two bills that will reform the country's health care system. The first bill, the "Patient Protection and Affordable Care Act" (H.R. 3590), was signed by President Obama on March 21, 2010. The companion bill, the "Health Care and Education Reconciliation Act of 2010" (H.R. 4872), makes several changes to the "Patient Protection Act." It was signed into law on March 30. Taken together, these two pieces of legislation will have a major impact on the health care industry and on the taxes paid by businesses and individuals.

Provisions in these laws will go into effect over the next several years, creating an estimated $438 billion in new taxes on employers and individuals. Among the key tax provisions in the health care reform laws:

* Starting in 2013, the payroll Medicare tax, now 1.45% of wages, will increase to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by couples filing jointly.

* Starting in 2013, a new 3.8% Medicare tax will be imposed on unearned income for single taxpayers with incomes over $200,000 and couples with incomes over $250,000. Unearned income includes interest, dividends, capital gains, rental income, and income from passive activities.

* Starting July 1, 2010, a 10% tax will be imposed on indoor tanning services.

* Starting in 2013, the 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65.

* Starting in 2011, contributions to flexible spending accounts for medical expenses are limited to $2,500. Beginning in 2011, over-the-counter medications generally cannot be purchased with these funds.

* Starting in 2011, the penalty for using health saving account funds for nonqualified expenses increases from 10% to 20%.

* Beginning in 2018, insurance companies will be assessed a 40% excise tax on health insurance plans with annual premiums exceeding $10,200 for individuals and $27,500 for families.

* The tax credit for adoption expenses is increased to $13,170 for 2010, and the credit is extended through 2011.

The health reform legislation contains over 2,500 pages. It is estimated to cost $940 billion over ten years, cut the federal deficit $143 billion over ten years, and reduce the number of uninsured individuals by 32 million.

Should You Be Making Quarterly Tax Payments?

During the tax year you must prepay a substantial amount of the taxes you'll owe for that year, or you risk being hit with an underpayment penalty. If you're an employee, that's usually not a problem. Your employer will withhold taxes from each paycheck. You can adjust the amount withheld so that it covers your total tax bill, even if you have extra income from moonlighting or investments. But if you're self-employed or retired, you might need to make estimated tax payments.

To avoid a penalty, the total of your withholding and estimated tax payments must generally be at least 90 percent of your tax liability for the year, or 100 percent of your last year's tax liability. There's no penalty if your underpayment is less than $1,000. Special rules apply to farmers, fishermen, and higher-income taxpayers.

You pay your estimated taxes by making four payments, due in April, June, and September of the current year, and in January of the next year. You can't just wait until the last date to pay what you owe. You must start paying estimated taxes as you earn taxable income. You must be sure to pay enough to avoid an underpayment penalty for each period. Again, special rules apply to farmers and fishermen.

Please contact our office if you think you might need to make estimated tax payments. The quarterly calculations can be complicated, and we can help you figure out how much you need to pay on each date.

New Business:

"HIRE Act" Has Tax Breaks For Businesses

The "Hiring Incentives to Restore Employment Act" ("HIRE Act") was signed into law by President Obama on March 18, 2010. The law includes temporary tax breaks for businesses that hire workers who have been unemployed for at least 60 days, and it extends for one year the higher expensing limit for business equipment purchases.

* Hiring incentives. The "HIRE Act" provides $13 billion in tax incentives to private businesses that hire unemployed workers. Employers can receive an exemption from social security payroll taxes for every qualified worker hired after February 3, 2010, and before January 1, 2011. For new hires kept on the payroll for at least 52 weeks, employers may qualify for a tax credit for each retained worker of the lesser of $1,000 or 6.2% of wages paid during the 52-week period.

The payroll tax forgiveness provided in the law does not apply to the Medicare portion of the tax. Also the new employee cannot displace a current employee unless that employee quit or was fired for cause. Relatives of the employer are not considered qualified employees for these tax breaks.

* Increased expensing limits. The 2009 maximum amount that could be expensed for the purchase of new or used business equipment was $250,000, with a dollar for dollar reduction once total equipment purchases for the year exceeded $800,000. The expensing limit fell to $134,000 for 2010, with phase-out set at $530,000. The "HIRE Act" retroactively reinstates the higher 2009 expensing limits for 2010. This is a one-year extension only, and it does not include an extension of bonus depreciation allowed last year. Off-the-shelf computer software will continue to qualify for expensing for 2010 purchases.

The "HIRE Act" does not extend the business and individual tax breaks that expired at the end of 2009; nor does it extend COBRA premium assistance. These provisions are addressed in other bills under consideration by Congress.

What's New in Finances:

Watch Out For Census Scams

As the 2010 U.S. Census gets underway, the Better Business Bureau is cautioning people not to become victims of fraudulent census takers who are trying to steal your identity. Here's the advice given by the Census Bureau and the Better Business Bureau.

* Ask for identification from any census taker who comes to your door. Legitimate census workers will have a badge, a Census Bureau canvas bag, and a confidentiality notice.

* Don't respond to e-mails. Census workers may contact you by phone, mail, or in person. The Census Bureau will not conduct any part of the census by e-mail. Never click on a link or open any attachment purporting to be from the U.S. Census Bureau.

* Don't give out information about your credit cards, bank accounts, or other financial accounts. Also be aware that census workers will not ask for money or solicit donations.

Long-term Disability Insurance: How Important Is It?

You've probably purchased life insurance or at least considered buying it, especially if you have dependents. But statistically speaking, you're less likely to die during your working years than to suffer some sort of long-term disability.

For most people the ability to earn a living is their greatest asset, and losing that ability can have a devastating impact.

So it can make sense to consider long-term disability insurance. Here are three questions to ask when shopping for this type of policy:

1. What coverage do I already have? Many companies provide their employees with some type of sick leave benefits, short-term disability coverage, or both. Get a handle on your current coverage so you don't end up paying for more insurance than you need. Also, if you've accumulated several weeks or months of sick leave, a policy with a longer waiting period - and generally cheaper premiums - may make sense.

2. How strong is the insurer? Only a handful of major insurers provide individual long-term disability policies. To research the financial strength and reputation of any potential insurer, review the firm's rating information at Moody's or another rating agency. You can also find out whether an individual agent or company is properly licensed by contacting your state insurance department.

3. Is the policy "noncancelable" or "guaranteed renewable"? These terms indicate whether the policy's terms are subject to change. If a policy is "noncancelable," the company can't cancel your policy (except for failure to pay the premiums), and you can renew the policy without an increase in the premiums or a reduction of benefits. On the other hand, a "guaranteed renewable" policy allows the insurer to increase the premiums under certain conditions.

Many other components - waiting periods, inflation provisions, benefit amounts, definitions of "disability," age, health, and occupation - factor into the cost and benefits of a particular policy. So understanding the ins and outs of long-term disability insurance isn't always a cake walk. But with a little time and effort you can sort through the jargon and find a policy that makes sense for you.

If you need help, give us a call.

Take a Break

About the IRS…

According to statistics reported on its website, the IRS deals directly with more Americans than any other institution, public or private. In 2008, the IRS collected more than $2.3 trillion in revenue and processed over 250 million tax returns. During 2008, individual income tax return filers received tax refunds totaling nearly $270.4 billion.

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The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.

Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Janell Israel & Associates and NPC are separate and unrelated companies.

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Please visit www.janellisrael.com for up-to-date financial information & www.postoplanning.com for information regarding long term care insurance.