FSA and HSA Debit Cards

The Affordable Health Care Act essentially bars purchase or reimbursement of over-the-counter (OTC) drugs from FSAs and HSAs made after Dec. 31, 2010, unless there was a prescription for the medicine and a receipt for the purchase.  Now the IRS has issued updated guidance modifying the old rules and posted Q&A on its web site.  (www.irs.gov/newsroom, and search for care tax provisions)

Accountable Plans

Accountable plans that meet IRS requirements do not require employee expense reimbursements and allowances to be included in income on an employee's W-2 (nonaccountable plan reimbursements do; employees must file a 2106 with the IRS to claim the deductions)   An accountable plan must require employees to submit within a reasonable period of time. 

1.  an account of the expense in writing, including its business purpose; and

2.  excess reimbursements or unused allowances. 

An accountable plan requires a written policy of company procedures for expense advances and reimbursements and required employee documentation.  (Without this, a plan may be deemed nonaccountable.)

Some employers provide credit cards for specific expenses, such as travel, monitoring usage with reports from the card issuer.  For details, download IRS Pub. 463, at irs.gov

Section 179 Expensing for Small Business has changed

For taxable years beginning in 2012, the maximum deduction of $125,000 of the cost of qualifying property placed in service for the taxable year is reduced as the cost rises above $500,000.00. The $125,000 and $500,000 amounts are indexed for inflation.  Also extended for 1 year (through 2012):  Treating off the shelf computer software as qualifying property and amending or irrevocably revoking the Section 179 election for a taxable year without the Commissioner's consent. 

For taxable years beginning in 2010 and 2011, the maximum amount that a taxpayer may expense is $500,000 of the cost of qualifying property placed in service for the taxable year.  The $500,000 amount  amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $2,000,000.  Off the shelf computer software placed in service in taxable years beginning before 2012 is qualifying property. 

For taxable years beginning in 2013, the maximum Section 179 dedcution of $25,000 of the cost of qualifying property placed in service for the taxable year is gradually reduced as the cost rises above $200,000.