Moore Colson Newsletter

Moore Colson Newsletter - November 2005

IRS relaxes FSA “use it or lose it” rule

A flexible spending account (FSA) is a valuable benefit that allows employees to pay certain expenses — such as unreimbursed medical expenses and dependent care expenses — on a tax-advantaged basis. Participants can contribute up to the employer’s plan limit each year in pretax money to an FSA, usually through payroll deductions. As they incur eligible expenses (such as insurance deductibles and copayments, and certain over-the-counter drugs), workers are reimbursed tax-free from the account.

FSAs have one major disadvantage: Any unused benefits or contributions remaining in the account at year end are forfeited. Critics of the “use it or lose it” rule have urged the government to loosen this restriction. The IRS responded with Notice 2005-42, which permits employers to offer a grace period of up to 21/2 months after the end of the plan year. Funds remaining in an FSA at the end of the plan year can be used to reimburse participants for eligible expenses incurred during the grace period.

To provide your employees with this benefit for the current plan year, you must amend the plan by Dec. 31 and apply the grace period to all participants.

Options abound when considering forms of compensation

Now is the best time to consider changes to your business’s compensation package for next year — which makes this article extremely timely. It covers important issues such as the IRS stance on unreasonable compensation and how you can justify compensation amounts, how to use incentive stock options and nonqualified stock options to spice up your compensation packages, how to create a benefits package that will help you attract and retain high-level employees, and options to consider when developing a retirement plan.

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Phishing got you down?
Develop an information security policy

If your business has ever known the angst associated with a computer virus that has spread to every computer on your company network, you’ll appreciate this article. It discusses some of the more insidious information security issues facing businesses today, such as hacking, phishing, and cyber terrorism. But it doesn’t stop there: The article also lays out preventive measures you can implement to stop unwanted invasions in your company.

Capital ideas
Year end tax strategies for investors

As the year winds down, it’s a good time to review your portfolio and consider investment moves you can make before Dec. 31 to cut your tax bill. But be sure to keep your overall financial picture in mind: Your decision to buy, sell or hold investments should never be based on tax savings alone. This article reviews year end tax strategies such as taking stock of gains and losses.

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