Starting January 1, 2011, FSA requires a prescription in order to reimburse the cost of over-the-counter medicine, known as OTC. However, you can be reimbursed for insulin without a prescription. 

Even though this law allows reimbursement for OTC drugs with a prescription, you'll still need to check with your employer to see if your specific plan will also allow reimbursement for OTC medicines purchased with a prescription.

If you use a debit card for FSA purchases, check with your employer about using it for OTC drug purchases after December 31st 2010.

The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead.

Nevertheless, there are quite a few exceptions where gifts are not taxable:

Gifts that are no more than the annual exclusion
for the calendar year.

For year 2010 and probably for 2011 as well the gift tax exclusion amount is set at $13,000 per person. This means that you can make gifts up to this amount to as many people as you wish tax free. If married, the gift exemption can go up to $26,000 per recipient.

If the gift amount is higher than $13,000, the difference is subject to tax. There is a lifetime gifting limit of $1,000,000 (above the annual exclusions) allowed before a gift tax is incurred.

When you make annual gifts to your children or grandchildren you eliminate those assets from your estate as well as the possibility that those assets will appreciate as part of your taxable estate.

If your children or grandchildren are minors you have to set up a custodianship or trust until they are 21 years old.

Gifts to your spouse

If your spouse is an American citizen, there is an unlimited marital deduction, meaning that any amount you give to your spouse is exempt from gift taxes. If your spouse is not an American citizen, there is an annual exclusion of $134,000 for 2010 which may be indexed for the following year.

In order for your gift to your spouse to qualify for deduction or exclusion, the gift must be of a “present interest” in the gifted property. In other words you need to give the property entirely to your spouse to use, enjoy and benefit from without any strings attached.

If you prefer to finance your child’s education by participating in a Qualified Tuition Program (529 plan), there are different rules that apply to these tax favored programs, as we will explain in one of our future newsletters.

Gifts to a political organization.

Gifts you contribute to political organizations are tax-free, but the Federal Election Commission regulates how much you can give a political organization under federal campaign finance law.

Gifts to charity

Of all the gifts we mentioned here, gifts to charity are the only ones deductible on the donor's tax return. You can find details on how to deduct your charitable contributions in our April 2010 newsletter (http://carlwatts.com/newsletter/april12_2010.html).

You may deduct as much as 50 percent of your adjusted gross income for charitable contributions, as long as you have all the necessary documentation to verify the donations were made to a qualified not-for-profit organization.

If you decide to sell the gifts received and their value increased over time (as with stock shares, for instance), then you have to pay income taxes on your gain or interest.

However, there are situations when gifts are not excluded from taxation:

If you intend to make gifts as part of your overall estate and financial plan, you should definitely engage the services of professionals.

The Federal Estate Tax regulations are complex and complicated and subject to substantial changes in 2010 and 2011.

As you already know, we are always here to help you navigate through the maze of tax laws and regulations.