Internal Revenue Code Section 105 (which excludes employer-paid health insurance and other benefits from your taxable income) and Section 213 (which lets you deduct your medical and dental expenses) have both been law since 1954. You would think, after all those years, the topic of “medical deductions” would be pretty well settled. But you might be surprised to learn just how much taxpayers and the IRS clash over the limits of medical deductions. So, with most of the country headed into the worst of flu and cold season, let’s take a look at some of the more intriguing recent developments in medical deductions:

• The IRS denied a request from the American Academy of Pediatrics to make breast-feeding costs a deductible medical expense. Although one study found that antibodies passed from mother to child could prevent the premature deaths of up to 900 babies per year, the IRS considers breast milk to be “nutrition” rather than “medicine.”
• The IRS issued an opinion stating that the cost of an “herb” may be a deductible medical expense if: (1) the taxpayer can substantiate that they have a medical condition, (2) they’re purchasing the herb to treat or alleviate that condition, and (3) and they wouldn’t have bought the herb “but for” that condition. However, the IRS still just says no to deductions for medical marijuana “” even when prescribed by a state-licensed physician “” because marijuana remains illegal under federal law.
• Would you believe that sex change surgery is a deductible expense? The Tax Court just issued a 139-page opinion ruling that gender identity disorder is a “disease” under Code Sections 213(d)(1)(A) & (9)(B) and the taxpayer’s hormone therapy and surgery were for “treatment” of that disease under those same sections. But in the same case, the Court also ruled that the taxpayer’s breast augmentation was merely directed at improving her appearance and thus qualified as nondeductible “cosmetic surgery” under Code Section 213(d)(9)(a).
• Finally, the Tax Court shot down deductions for $108,086 in visits to prostitutes and $7,373 in pornographic books, magazines, and other materials. The taxpayer, a 77-year-old tax attorney (I know, Ripley’s didn’t believe it either), argued they were reasonable expenses to fight depression and erectile dysfunction brought on by age. The Court noted that: (1) none of those expenses were incurred as part of any course of therapy prescribed by a doctor, (2) patronizing prostitutes is illegal in New York, and (3) really, the taxpayer should have known better!

Medical expenses in general are getting harder to deduct. Last year’s healthcare reform raises the threshold for deducting medical and dental expenses, effective 2013, from 7.5% to 10% of adjusted gross income. (If you’re self-employed or buying your own insurance, ask us if a Medical Expense Reimbursement Plan or Health Savings Account might help avoid those limits entirely!)

Now let’s sew this all up. If your doctor told you you needed surgery, you’d ask for a second opinion, right? Well, the IRS performs surgery every day. They remove cash from your wallet  and they don’t use anesthesia! So if you’re not already doing business with us, and you’d like a second opinion on your taxes, call us! If you already are doing business with us, and you have friends, family, or colleagues who’d like that second opinion, send them our way!

There’s a saying: Pigs get fed and hogs get slaughtered. The Internal Revenue Service surely hopes that includes tax hogs.

That is the message of a recent U.S. district court case won by the IRS against David Watson, a CPA in West Des Moines, Iowa. At issue: a common tax-cutting maneuver available to the owners of millions of closely-held businesses.

The case, David E. Watson P.C. v. U.S., revolved around Mr. Watson’s low pay as the sole owner and shareholder of a so-called S Corporation. Such companies, often called “Sub-Ss” after the subchapter of the tax code governing them, is a popular choice of entity for private firms. Unlike C corporations, Sub-Ss have no more than 100 shareholders, and they pass profits to owners without an extra layer of tax. There are nearly 4 million Sub-Ss in the U.S. today.

Mr. Watson’s Sub-S was, in turn, one of four principals in LWBJ, an accounting firm. According to the decision, the firm made profit distributions of $203,651 and $175,470 to Mr. Watson through his Sub-S for 2002 and 2003, respectively, the years in question.

Mr. Watson, who had a graduate degree in tax and 20 years’ experience, received only $24,000 of salary for each of those years, far less than the $40,000 a year earned by recent graduates in accounting with no experience, according to one expert for the IRS.

The agency cried foul, saying his pay was far too low. Why object? Unlike profit distributions, all salary is subject to a 2.9% Medicare tax and some is subject to a 12.4% Social Security, or FICA, tax. (The FICA income cap, $84,900 in 2002, is now $106,800.) By reporting low pay Mr. Watson didn’t save any income taxes, but he did save nearly $20,000 in payroll taxes for the two years, the IRS said, pegging Mr. Watson’s true pay at $91,044 for each year.

Judge Robert W. Pratt agreed, ruling that the CPA owed the extra tax plus interest and penalties.

Mr. Watson plans to appeal the decision. “The IRS can disallow a tax deduction for unreasonably high compensation, but the law doesn’t give it the authority to raise pay in order to collect extra payroll taxes,” he says. Independent tax expert Robert Willens in New York says this will be a hard argument to win.

For Sub-S owners, this issue isn’t going away. Last year it even turned up in legislation, when the House passed a provision that would have subjected all profits of shareholder/employees of personal-service firms “such as accounting, law and consulting firms” to payroll taxes. The measure died in the Senate, but the IRS would likely welcome its return. Cases like Mr. Watson’s are expensive for the agency to litigate because each turns on individual circumstances.

Recent IRS statistics suggest why the agency might focus on Sub-S pay. Over the past decade and a half, when executive paychecks exploded, the salaries of Sub-S owners declined as a percentage of total income, from 52% in 1995 to 39% in 2007, according to the latest data available. (The remaining income is taxable to the owners as well, but doesn’t incur payroll taxes.) During the same 12-year period, Sub-S income doubled, while salaries increased only 26%. The average pay for a Sub-S owner was recently was $38,400, according to Martin Sullivan, an expert with Tax Analysts, a nonprofit publisher near Washington.

Tom Ochsenschlager, former head of tax for the American Institute of CPAs, says pay and payroll tax issues are a frequent source of friction with clients: “Sometimes you have to take them to the woodshed and say, ‘You need to report more income as pay for personal services.”‘

What is a fair ratio of profits to pay? There isn’t one answer, experts say. A company with substantial capital or assets, such as a manufacturer, often is able to justify lower pay than one selling personal services like a law or accounting firm. Says Mr. Willens: “I would tell a client that for personal services, 70% would be the absolute floor and might not get the job done,” he says.

In Mr. Watson’s case, his revised compensation came to only about 40% of his total return from the company. The upshot: Pay can vary “but it can’t be too low.”

Deirdre

In a letter sent Thursday, Sens. Ben Nelson of Nebraska, Maria Cantwell of Washington and Amy Klobuchar of Minnesota urged the House speaker to send the Senate a stand-alone measure on the tough reporting rule meant to generate revenue, which is widely unpopular among Republicans.

The three Democrats “” all up for reelection in 2012 “” are part of a larger bipartisan group of senators who have indicated they support repealing the measure, although Nelson, Cantwell and Klobuchar have specifically requested the House take it up first.

“We have heard from small-business men and women in our states who have voiced concern that this provision is burdensome and unnecessary and could potentially undermine our nation’s economic recovery,” they wrote, adding that they are “confident that the Senate can quickly act” on repealing the provision once the House passes it.

The rule will force businesses to fill out a tax document, called a 1099, every time they buy more than $600 worth of goods or services from anyone outside their company. It’s meant to give the IRS a better picture of individual taxable income.

Michael Steel, spokesman for Boehner, said the speaker also supports eliminating the 1099 requirement, but “it is far from the only job-destroying provision in Washington Democrats’ law.”

“Now that the House has passed a law to repeal it, the best course would be for the Senate to do the same, and I hope these senators are pressing Senate Majority Leader [Harry] Reid to do just that,” said Steel.

Reid has said he has no plans of bringing a full repeal bill, which passed Tuesday in the House, to the upper chamber’s floor.

However, the move to repeal the 1099 provision appears to have a lot of bipartisan support in the Senate.

Separate from Nelson, Klobuchar and Cantwell, Sen. Mike Johanns’s (R-Neb.) said he plans to introduce a bill Tuesday, when the Senate comes back into session, that would repeal the 1099 tax paperwork mandate.

Johanns’s bill currently has 25 co-sponsors, including three Democrats: Sens. Kay Hagan of North Carolina, Joe Manchin of West Virginia and Mark Udall of Colorado, and his spokesman says he is is hopeful that others “” including Nelson, Klobuchar and Cantwell “” will sign on soon.

 Read more: http://www.politico.com/news/stories/0111/47897.html#ixzz1BhhLR2XI

1.  Get it together: We hope you’ve kept track of your income and expenses and receipts in a place other than a shoe box or envelope. If you haven’t, now is the time to get organized. Label envelopes and sort your receipts by expense categories and tally up the amounts for each category. Note to self, begin 2011 in a more organized fashion so you don’t have to spend hours sifting through paperwork to pull together your income and expenses. Once you’ve taken care of receipts, gather up all tax-related information you may be receiving from the bank or employers.
2. Take stock of your financial situation:  This should be something that you do on an annual basis with your tax professional.  Take a look at your financial assets, real estate holdings and insurance policies and if you need to make changes to your beneficiaries this should be the time you make those decisions. Make sure your family members or business partners know where to find the list of your assets and other pertinent information.
3. Spend down your income: If you need to spend down some income to reap the highest tax benefits, now is the time to review that – again check with your tax advisor as there may be additional deductions of which you may not be aware of. Also, check to see if you need to spend the rest of the money from your FSA’s.   Lastly, check to see if there are vacation, sick or personal days at work that you will lose if you don’t use them.
4. In case of emergency: Do you have an overview document that your family or business partners could easily access in the event of an emergency?  It should include personal information such as: birth date, social security number, passport and driver’s license number and employment retirement information. For business and tax purposes your emergency contact information should include: where your bank accounts and financial assets are located; where are your wills and trusts filed, where is the essential information for your physical assets, your insurance policies.
5. Make an appointment: Don’t wait until December 31 to think about what tax consequences you may encounter. You should be contacting your tax professional/small business consultant as soon as possible so if you have an opportunity to lower your tax obligations you will have time to do so.

Bottom line – while each individual and business circumstance is unique, these tips should give you an idea of what you need to be looking into to protect your assets before years’ end.

 Unless elected officials extend various Bush-era tax cuts, individuals could be facing higher tax rates on their income and capital gains. We’ve put together a how-to list on items you can address to save tax dollars if you take steps before years’ end. Remember, not all of this information is applicable to every individual so it’s crucial that you contact your accounting professional.

• Getting a bonus? See if it can be deferred until the first pay period of 2011 if it might bump you to a different tax bracket.
• If you participate in an employer sponsored health flexible spending account, increase the amount you set aside for next year. However, make certain you don’t set aside too much and then be unable to spend your allotment.
• Postpone income (until 2011) and accelerate deductions (for 2010) to lower your taxes for this year. If you do this, you may be eligible for larger deductions and credits that might normally be subject to income phase outs, especially if you expect to be in a lower tax bracket next year. (Then again, doing the opposite may be more beneficial, depending on the circumstances – again, this is something to speak to your tax professional about)
• Increase your payroll withholdings if you are facing a penalty for underpayment of federal estimated tax. If you do this, you may be able to reduce or eliminate the penalty.
• Play Santa before the end of the year by making annual exclusion gifts – this will help save gift taxes and you can give up to $13,000 tax free in 2010 to an unlimited number of people.

 Time is of the essence as there are only a few weeks left before the end of the year to look into getting your books in order. Once December 31 hits the opportunity to make any taxes will run out; contact your tax professional while there is still time!

1. Build a Team:  Ask for help when you’re first starting out. It may be tempting to try and do it all yourself as a way to save money because you have a small budget but you should enlist professionals to keep your business on the right track. Enlist the help of an experienced accountant and/or bookkeeper.  Build relationships with bankers, and get to know other business owners in the field you are thinking of starting out in.  This can help cut down on the time, expense and revenue lost when business owners do everything on their own. 
2. Put together a budget:  Whether you’re bootstrapping your business or you’ve been lucky enough to obtain venture capital, a budget is a must.  You need to know how much money is going out and coming in at all times and plan accordingly.  Playing pin the tail on the donkey with our finances in business is not to be advised.  Sadly too many business owners don’t pay attention to the money when first starting out and overspend.  Lack of resources is the number one reason that most businesses fail.  By planning ahead you give yourself a better chance for success. 
3. Know your market. You need to know who the market is for your goods or services – without knowing who you are looking to reach you will be like a dandelion in the wind – scattering seeds and hoping some catch.   Understand who they are, where they are and what they are buying. 
4. Have a plan.  Along with a budget it’s advisable to have a business/marketing plan.  No worries about having it set in stone.  Just get the framework into place so that you can understand what you’re doing. 
5. Have your rates in place before you open the doors. You have to be clear from the beginning as to what your rates will be. Be honest with yourself about how much your services are worth and what you need to charge in order to make your business viable.  You will need to know what your overhead is so you know what you need to make in order to thrive. When you’re setting your rates, remember you are selling the value of your experience as well as the service or product itself.

Being an entrepreneur is a challenging and exciting time and by following these 5 steps, you can rest easy at night knowing that you’ve done the work necessary to get off on the right foot towards success.

Changes With Income Tax Credits – Generally, a tax credit is a direct reduction in tax liabilities, and is usually put into place in order to encourage a certain behavior. Sometimes tax credits can even result in a refund. This is different from a tax deduction which only lowers your taxable income. Below are a few tax credit changes we will see in 2011 and a few weird ones that already went into effect:

• Child Tax Credit Reduced – In 2011, the child tax credit will be cut in half to $500 per child and may not even be applicable to all taxpayers. For those filing  jointly, the tax credit begins to phase out at $110,000 (AGI) and for taxpayers completing a single tax return at $75,000. While President Obama has mentioned the possibility of increasing this tax credit for families that fall under the middle class, no action has thus far been taken.

• Making Work Pay Tax Credit Gone – This year workers are able to get a tax credit for 6.2% of their earned income with a maximum credit of $400 for single filers and $800 for married couples. In 2011, this tax credit will be eliminated unless Congress acts as Obama’s proposal seeks to extend this credit in 2011.

• Earned Income Tax Credit Reduced for Some – This is a tax credit for low income working families with earned income less than or equal to $48,362. The income limits on this credit vary by your filing status and by the number of children you claim as dependents. In 2011, the EITC is expected to decrease for families with three or more children with higher income phase outs eliminated.

• Hope Tax Credit Changed – This tax credit goes back to being only applicable for the first 2 years of college and the limit goes from being $2500 to $1800. Of course there are income limits as well with this credit. The President has stated he wants to make the changes with this tax credit in 2010 permanent but nothing is set in stone yet.

• Energy-Saving Credits Gone – The current 2010 credit for principal residence homes making changes to housing insulation, windows, doors, HVAC equipment, water heaters and more will expire next year. This tax credit allowed up to 30% ($1.5k max limit) back with applicable energy efficiency improvements.

• HomeBuyer Tax Credit for Veterans – If you or your spouse are part of the  Armed Forces, Military Intelligence or Foreign service and have been engaged in activity duty for at least 90 days outside of the United States you have until April, 30th, 2011 to sign a real estate contract and close by at least June 30th, 2011. Be sure to make note of this date if you intend on purchasing a house and claiming this credit.

• Changes With Income Tax Rates and Other Taxes – Tax rates refer to the percentage of taxes that need to be paid with regards to income tax rates, estate transfers, and capital gains.

• Estate Tax To Increase – The Estate Tax, also referred to as the Death Tax, a term that may hold more meaning to many taxpayers, is set to return. Through the Economic Growth and Tax Relief Reconciliation Act in 2001, the estate tax has been phased out over the past 10 years but will unfortunately reach an end this year. This means that unless Congress has a dramatic change of heart, the estate tax will not only return but is set to increase to 55% for homes valued over $1,000,000 dollars (under Obama plan this tax rate is 45%). Therefore, 2010 becomes the year to die!

• Capital Dividends and Gains Hikes – Those who fall within the upper tax brackets should prepare themselves for a changing rate. After this year, the current 15% long-term capital gains rate will return to 20%. However, those in the upper tax brackets will not bear the weight alone as most brackets will be affected. Under former President Bush, the lower 15% income tax bracket had a 0% capital gains rate but this number is expected to rise to 10% in 2011. For the upcoming year, dividends, excluding mutual fund capital gain distributions, will no longer be taxed at 15% for those in the upper tax brackets but will instead is set to be taxed as income. While President Obama is proposing that the dividend rate mentioned here simply be increased to 20% no action has been taken. Regardless of the outcome, those in the upper tax brackets will be faced with a higher tax on dividends.

• Income Tax Hikes – President Obama’s proposed budget for 2011 will extend changes to not only income tax rates but income brackets as well. However, tax breaks for single taxpayers with an income of less than $200,000 and married couples earning less than $250,000 will be exempt from any changes (under his plan). As far as brackets are concerned, the 28% tax bracket is predicted to rise. The 33% tax bracket is also forecasted to increase to 36%. Similarly the top 35% tax bracket is expected to be 39.6% by next year. More importantly, our government is expected to go back to discouraging marriage and the family as the well known “Marriage Penalty” will return with narrower tax brackets and the fact that the standard deduction will not be doubling for married couples what it is for single filers (those slated to get married this year or next will be discouraged to do so, if only marginally).

Changes With Tax Deductions – A tax deduction is not a tax credit. Instead, a tax deduction lowers a taxpayer’s gross income or tax base in exchange for a certain behavior or action. Therefore, it normally reduces indirectly by lowering the amount the taxpayer pays.

• Mortgage Insurance Premium Deduction Gone – Beginning January 1, 2011, taxpayers will no longer be allowed to deduct mortgage insurance premiums from their tax returns. Previously, homeowners who were paying insurance premiums for mortgage contracts that were signed after December 31, 2006 were able to take this deduction assuming they fell within the income cap of $100,000 for families.

• 179 Business Expense Deduction Lowered – For 2011 there are several business taxes that will be affected. The section 179 expense deduction that pertains to small companies and firms emerges as a prime example. Here, the maximum expenses deduction will see a significant decrease from $250,000. Of course, as with all tax deductions, other limitations apply.

• Student Loan Interest Deduction Limit Changes – For 2011, individuals or married couples can only deduct interest from the first 60 months of the repayment term. Moreover, the phase out income limits for claiming the deduction for both single filers and married couples will come down.

•Sales Tax & Other Tax Increases That May Affect You:

• Tanning Tax – This tax is an excise or sales tax for those individuals who love to brown their skin. This tax will continue next year and it just started at the beginning of this month. Although it is a mid-year 2010 tax, it is still a new tax that will primarily impact individuals at the end of this year/start of next year as fall and winter approach.

• Brand Name Pharmaceutical Tax – This tax is an annual tax assessment on brand name pharmaceutical companies which amounts to a total of $2.5 billion for 2011. The end result is that many of us will see our brand name drug costs going higher.

•Other Notable Tax Changes:

• Coverdell ESA and 529 Plan Alterations – Previously, under a 529 Plan, taxpayers with children were encouraged to invest after-tax money into an account that increased with tax free withdrawals assuming the money was being used to contribute towards educational plans. However, in 2011, 529 Plan withdrawals will not be tax free when paying for the cost of computers or internet access. Coverdell ESA Plan will see changes as well. This plan is similar to the 529 Plan but is directed towards elementary and secondary educational costs. In 2011, the maximum contribution limit per year on this plan will drop dramatically from $2,000 to $500 unless Congress moves quickly.

• HSAs, HRAs, and FSAs Cannot Be Used for Over The Counter Medicine - Americans will no longer be able to use Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) to purchase over the counter medicine if it is not insulin. • Economic Substance Doctrine – This sounds confusing but basically is a new IRS provision that gives the IRS more power. If the Internal Revenue Service deems perfectly legal tax deductions as not having “economic substance” because the underlying transactions were enacted to avoid taxes, your business could face penalties.

This information is meant to be general in nature and should not be construed as financial, legal or tax advice related to your personal situation. Contact our office if you need help navigating these confusing tax proposals.

 Here are the seven mistakes we see entrepreneurs making and we’d like to help you to avoid:

1. 1.  Trying to do it all. Many times the entrepreneur and his or her spouse wants to do it all even if they aren’t really sure what they’re doing. Believe it or not, taking care of business books is much different than taking care of your personal banking. Hiring a professional from the beginning can save you problems in the future with the IRS.
2. 2.  Co-mingling personal and business funds. There needs to be a clear separation of personal credit cards and cash and business credit cards and cash. You need separate bank accounts and credit cards for your business. Additionally, you need to record your transactions accurately.
3. 3.  Leaving bank accounts un-reconciled. You need to reconcile your books monthly and those statements should correlate to the other statements, invoices and receipts you’ve logged. This will help you in the long run, especially at tax time.
4. Properly tracking employee compensation. You need to decide from the beginning whether you will have employees or independent contractors and before you can do that you need to know the difference between the two as the IRS draws very clear distinctions. In fact, the IRS has just announced a new audit of small businesses to confirm compliance with employee compensation laws. 
5. Choose the right bookkeeping system and set up for your business. Do you need software that tracks time spent on projects? Do you need to know whether you have to replenish inventory? If you buy a “starter” program for your bookkeeping needs, will it be able to grow as your business grows or will you need to start over?
6. Correctly setting up and managing business categories in your bookkeeping system. You need a clear idea of how to organize your business with your account categories and while it’s true you can certainly add categories later, you need to be aware in your head before you even start as to which categories your goods and services will fall in order to set them up correctly.
7. Not knowing whether you are set up properly to operate as a business in your city and state. Do you have an EIN? Have you registered your business name? Should your business be a sole proprietorship? Are you an LLC, an S-Corp? Do you even know the meanings of those terms? If not, consult a business professional.

 While there are certainly many things you can take on your own when it comes to your bookkeeping such as organizing your receipts and invoices so that when you go to see your accounting professional you are organized. It’s also best to ask for referrals before you choose an accountant or bookkeeper.

Credit card dilemma #1 – You’ve become a victim of identity theft. Identity theft affects close to 10 million Americans annually. It pays to keep a close eye on your cards, especially because so many merchants don’t require a signature for purchases of $25 or less. A thief could make an awful lot of charges on your card before you even noticed it was missing. What should you do if you start noticing unauthorized charges on your card? First, contact the bank that issued the card; be armed with the information on what the charge was and who the merchant is before you call the bank. Be proactive – check with your bank’s credit card fraud protection services are.

Common sense is your most useful tool. Continually scrutinize your statement, sign the back of your card, shop with merchants that know you, don’t give out financial information over the phone, and don’t leave your card unattended.

Dilemma #2 – Your card was stolen or you simply lost it. Again, the first thing to do is notify your credit card issuer. The bank can shut the card down and issue you a new one. If you pay your bills or have recurring payments attached to that credit card, contact your creditors so you don’t miss a payment.

Dilemma #3 – You’ve fallen behind on a payment (which could potentially lead to Dilemma #4). Missing even one payment can trash your credit score. The longer you go without making a payment the more damage it does. A payment that is more than 120 days late equates to having had a vehicle repossessed – as it rates on a credit score. If you think you’re going to be late, call your credit card issuer immediately; they may be willing to work with you to get you caught up and an early phone call may help you avoid penalties.

Late fees also fall into this dilemma. If you’re late the company automatically assesses late fees. There may be steps to take to get those reversed and if you call the credit card issuer they might refund the late fee if you’ve made arrangements to get your payment caught up.

Dilemma #4 – Don’t be caught off guard by an increased payment because your credit card issuer hiked up your interest rate. Sure, they have to notify you, but sometimes the fine print is so small that item gets buried in it. Many banks are willing to work with clients to keep the interest rate at an affordable level and find a solution to address the rate increase. You should have 45 days following the notice of a rate increase to contact your credit card issuer and ask for the reasons behind the increase. Sometimes, it might be more beneficial to close that card – as it will stay at the original rate of interest – and look for a new card and roll your balances over.

Dilemma #5 – It’s the Catch-22 you need to have credit to get credit so what do you do if you’re denied. Rather than just waiting for the denial letter to come in the mail, contact the bank and ask why you were denied. Ask if there is something specific on your credit report that led to the denial and ask if there are any alternatives you might be eligible for.

The bottom line with all of these dilemmas is to be proactive and contact your bank as soon as you find yourself facing any of them. It’s best to try and work out the issues directly with the bank, rather than hoping they will simply go away because they won’t.

Even with the myriad things you need to take into consideration, one thing should be an easy decision – if your employer offers a 401(k) program, and especially if they offer a matching contribution – you should sign up as soon as possible. According to a study by Financial Engineers in the NY Times blog, close to 40% of individuals don’t take advantage of participation in an employer provided 401(k) programs. While it may seem invisible, if your employer matches a contribution into a 401(k) program, it’s like getting a raise. If you earn $1,000 and your company will match up to $.50 per $1.00, up to 6% of your own 401 (k) contribution, that means if you contribute $60, they will add $30. That’s like getting a 3% raise.

If you keep up with recent news reports, you know that Social Security recipients are likely not seeing a raise in their benefits in 2011 and amid fears that Social Security benefits will run out soon, you need to prepare for your own financial future.

Here are some poor reasons for you to not take advantage of your 401(k) program and take advantage of an employer match:

1. You don’t want to lose money in the market. True, investing is not a guarantee but just think how hard you’d have to try to lose the money you gained from your employer’s financial contribution to your 401(k). Remember it’s like a raise and you generally have options of where to place your investment within the plan.
2. You want freedom to invest. Okay so you don’t like your employer’s 401(k) plan because you don’t agree with their investment strategies so you decide to not take advantage of the program because of philosophical differences. You’ve also shunned a 3% “raise” from the employer’s contribution on pre-tax income. To make up for that you’d need to find an investment that would pay you 114% on your $60 investment.
3. I want access to my money. You don’t want to sock money away in a 401(k) because if you want your money you want to be able to get to it when you need it, right? It’s true you will be hit with penalties and interest if you try to withdraw money from the 401(k) prior to retirement, but, again that’s no reason to shun your employer’s contribution to your retirement, is it? There are 401(k) plans that allow you to withdraw from your plan in the event of a true emergency and may even let you pay it back without penalties.
4. You don’t have that much spare money lying around. You can’t afford to contribute the maximum amount so you probably shouldn’t participate at all, right? Wrong. If you’re not accustomed to having the money in your pocket, it’s likely you haven’t allocated it toward your living expenses, right? You aren’t lowering your income by contributing to a 401(k),  you’re actually increasing your income in the long term because of the employer match.

 If you aren’t taking advantage of the 401(k) program, you really should consider it during the next open sign up season. Depending on what you envision your retirement to be you may want to look into other savings plans, contributing to an employer matched 401(k) makes great financial sense.