It’s time to spend down your FSA account
If you contribute to a Flexible Spending Account (FSA) to cover your out-of-pocket medical expenses, it’s time to review your remaining balance. Even if your employer extends the spending deadline to March of next year, you’ll want to take full advantage of this tax-favored program. One study found that over 80% of companies having 500 or more employees offered FSA plans, and they’re popular with many smaller businesses as well. A huge selling point is the ability to reduce income taxes. In effect, by contributing pre-tax dollars to an FSA account, you enjoy a discount on costs you would incur anyway. But if you fail to spend the entire account balance before the deadline arrives, you forfeit whatever’s left. That’s the law. Check with your human resources department or benefits office to confirm your company’s FSA spending deadline (usually December 31 or March 15 of the following year). Then consider paying down your account balance with the following eligible medical expenses:
Dental checkups. If you’ve already scheduled an appointment for a few months from now, consider moving it up. You also may want to pay for recommended dental procedures — crowns, fillings, and so on — before the spending deadline.
Vision examinations. Many insurance providers offer limited coverage for visits to an optometrist or ophthalmologist, so consider setting up an appointment before the FSA deadline. If you need to renew your eyeglass prescription, now may be a good time to make that purchase as well.
Chiropractic visits. Your insurance provider may limit the number of covered visits to the local chiropractor. Again, schedule additional appointments before the FSA deadline. Medications.
Prescription drugs are generally covered, but if you use over-the-counter medications, you’ll need a doctor’s prescription or letter of medical necessity for those costs to be FSA-eligible.
Mileage. Don’t forget the cost of getting to and from medical appointments or drug stores. Keep track of the miles, the offices you visit, and the receipts. You’re allowed to claim those miles using IRS mileage rates, but make sure you don’t claim the same miles on your end-of-year tax forms. Medical supplies. Anything from first-aid kits to walking canes to blood pressure monitors may be eligible. The key is having a doctor-signed letter of medical necessity on file. If you need more ideas about medical expenses that may qualify under the FSA spending rules, give us a call.
Balance sheet analysis leads to better business decisions
A well-prepared balance sheet contains a wealth of information. Assuming the asset, liability, and equity amounts are supported by accurate data, the relationship between the numbers — especially when compared with prior balance sheets — may provide valuable insight into your company’s financial health. That information, in turn, may guide you toward the best operational decisions.
A financial statement ratio is simply a comparison of one number with another. Though you may not use this term to describe such relationships, you’re already familiar with many ratios. Miles per gallon, price per pound, calories per serving of your favorite dessert — all are ratios used in everyday life.
The following three balance sheet ratios are paramount:
- Current ratio. To arrive at this ratio, divide current assets by current liabilities. For your company, current assets might include cash, short-term investments, accounts receivable, inventory, and supplies. Such assets are “current” because you expect to use them up in the coming year or operating cycle. Current liabilities are similarly defined. Such amounts might include accounts payable, payroll, or the portion of long-term debt that’s payable in the near term.
The higher the ratio, the better your firm’s liquidity. If you have a current ratio of 3:1, that means your current assets are three times the amount needed to pay off your current obligations. If the ratio is trending downward from one balance sheet to the next, your ability to service short-term debts is also declining. If the ratio drops below 1:1, your ability to meet current obligations may be hanging by a thread.
- Working capital. Though not technically a ratio (the number isn’t a quotient), working capital is another key measure of liquidity. Defined as current assets minus current liabilities, the greater the amount of working capital, the more likely a firm has enough liquidity to meet current obligations.
- Debt-to-equity ratio. Divide total liabilities by total equity (assets minus liabilities) to arrive at this ratio. This relationship is often scrutinized by financial institutions. The lower the percentage, the stronger a company’s equity position. In other words, the firm isn’t relying solely on debt to meet payroll or finance ongoing operations — music to the ears of lenders.
Ratios derived from profit-and-loss and cash flow statements may provide additional insight into your company’s fiscal health. If you’d like help analyzing your financial statements, give us a call here at Dye and Whitcomb, LLC 970-207-9724
Disability insurance: When are benefits taxable?
Have you decided to include disability insurance as part of your financial plan? If so, the next decision is how to pay the premiums. Here’s why: The choice you make now can affect the taxability of the benefits received later. For example, say your employer offers disability insurance as part of a cafeteria plan. When you sign up, the premiums are deducted from your paycheck before taxes. You’re getting a current break in the form of excluding the premiums from income, and later payouts of policy benefits are generally taxable to you. What if you pay part of the premium with after-tax income and your employer pays the rest? In that case, policy benefits are split into taxable and nontaxable portions. Illustration: You pay 40% of the premium and your employer pays 60%. Benefits are 60% taxable. If you opt to buy a policy yourself, premiums are not deductible on your personal tax return, and benefits you collect are not taxable. Like other aspects of financial planning, choosing insurance involves weighing your alternatives and selecting what’s most suitable for achieving your goal of protecting and growing assets. Give us a call. We’ll help ensure that your financial plan remains on track.
Sharing your tax information requires authorization
Your tax return is your private business, and the IRS is prohibited from releasing information you report, except in limited circumstances. You have to grant specific authorization to allow someone to discuss your return with the IRS, receive copies of your returns or tax notices, or negotiate with the IRS on your behalf.
For example, say you receive an IRS notice, and you want your tax preparer to resolve the issue for you. The only way your preparer can help is if you have given permission allowing an exchange of information with the IRS.
Here are three ways to grant authority for access to certain tax information.
- Third Party Designee. You may think of this as the “checkbox” authorization found near the signature area of your tax return. By checking the box and completing the requested information, you grant limited authority for the receipt or inspection of your tax information for that particular return.
The person you authorize will not automatically receive copies of IRS notices, but can review your information for the specific tax period. The authorization expires one year from the original due date of the return.
- Form 8821, Tax Information Authorization. This form is a disclosure authorization that allows the person you choose to automatically receive notices and other information about your taxes for periods you specify. You can revoke the authorization by submitting a signed copy of the original with the word “Revoke” written across the top.
- Form 2848, Power of Attorney and Declaration of Representative. The power of attorney lets someone who is eligible to practice before the IRS represent you and, in some cases, sign agreements and other documents on your behalf. You can revoke a power of attorney by filing a new one for the same tax period, or by sending a signed copy of the original with the word “Revoke” written across the top.
Other forms may be required, depending on the type of tax information and how much authority you want to grant. Give us a call. We’ll help you choose the appropriate level of authorization and complete the necessary form.