Archives for August 2014

Tax Tips for Back-to-School

This can be an expensive time of year for anyone who is preparing to enroll children or themselves in school. There are so many things to buy and fees to pay, it is hard to manage the expenses unless you have taken the steps to counter the added expenses of school. When it comes to school, some tax-deductions can help ease the pain of paying for school.

First, this is first; some expenses that are not deductible. These include school uniforms, even if they are required, and the cost of private or parochial school tuition. Sorry to everyone who thought that by sending their child to a private school they would be able to deduct the tuition. Another non-deductible expense is moving cost for college. Since moving away for college is not moving for a job, it is not a deductible expense.

Now on to the good stuff, if you can separate your school tuition from any childcare component, then the cost can be deducted for any children up to age 13.This would include any before or after school programs.

Another large part of school is fundraising. The good news is that donations to the school are deductible, but when it comes to fundraising, it is limited. You can deduct your purchase from a fundraiser as a charitable donation, but you have to reduce the deduction by the fair market value of the produce you received in return for the donation.

School always has its expenses, but with a few extra steps and careful planning you can help reduce the expenses that come with this time of year.


529 Plans and Saving for College

What is a 529 plan? Good question, right? This time of year is the perfect time to ask that question. It is back to school time and many student and parent wished that they had started a 529 plan a long time ago. The good news is you can start a 529 plan at any time, but the earlier you start the better.

Ok, back to the first question. A 529 plan is an education savings plan operated by a state or educational institution that helps family set aside money for future college costs. It is named after the section in the Internal Revenue Code that created the saving plan in 1996. A 529 plan can meet the costs for many colleges nationwide. A 529 plan is not affected by the state you saving plan is from. You can be a resident of VT, invest in a KS CA plan and send you student to a NC college.

Nearly every state has a 529 plan available, many offers more than one type and it is up to you to determine which is best for your family. Each state decides whether to offer a 529 plan and also how it looks. It is best to research the features and benefits for each plan before you invest. There are some benefits regardless of where you live. Some are:

  • The distributions that pay for the beneficiary’s college comes out tax-free
  • Many states offer tax breaks in addition to the federal treatment
  • Donor retains control of the funds
  • Low maintenance
  • Simplified tax reporting
  • Flexible
  • Substantial deposits are allowed

The 529 saving plans re categorized as either a prepaid or a savings plan. The savings plan is much like a 401K or IRA. You invest contributions into mutual funds or similar investments and your account will go up or down based on the value of the performance of the option you selected. The prepaid option lets you pay for part or all of the cost of instate public college costs. They may be converted for use at private or out-of-state colleges, but there is a separate investment plan for private colleges.


American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) has been extended for a second time thanks to the American Taxpayers Relief Act of 2012. It has now been extended through December 2017, at which time it is set to expire. So what does this mean for parents and student attending college? The answer is simple; it means there is help for college.

With the American Recovery and Reinvestment Act (ARRA) more parents and students will qualify for the AOTC to help pay for college. The AOTC modifies the existing Hope Credit, which helps make the credit available to a wider range of taxpayers, including many with higher incomes and those who own no taxes. Other changes the ATOC made were to add required course materials to the list of qualifying expenses. It also allows the credit to be claimed for four years of post-secondary education instead of just two years. It has a maximum annual credit of $2,500, which many of those eligible for the credit will qualify for the maximum allowed.

To qualify for the full credit an individual whose modified adjusted gross income must be $80,000 or less, and $160,000 or less for married couples filing jointly. For taxpayers with incomes higher than those levels, the credit is phased out. These income levels are higher than the existing Hope and Lifetime Learning Credits.

This credit only covers tuition, required fee for enrollment, and expenditures for course materials (i.e. books, supplies and equipment required by the course.). It does not cover room and board, transportation, insurance, medical expenses, student fees unless required as a condition of enrollment or attendance, same expenses paid with tax-free educational assistance, and same expenses used for any other tax deduction, credit or educational benefit.

This is a great way to off-set the cost of college for many of the people that qualify.


Too Much Debt

Having debt is sometimes a difficult burden. It looms over your head and follows you around like an angry cloud just waiting to rain on your parade. What happens when debt becomes too much, do you stop paying? Do you get a second job? A third job? It debt reconciliation a possibility? In a recent study by the Urban Institute, they found that around 35 percent of adults have debts in collections reported in their credit file.

So what exactly does “debt in collection” mean? Debt in collection involves a nonmortgage bill, such as a credit card balance, child support obligation, medical or utility bill, parking ticket, or library fines, that has been reported so far past due that the account has been closed and placed in collections. When bills are placed in collections, it is often with a third party collection agency. Those debts can hurt a person’s credit for seven years because every time a debt goes to collections it remains on your credit report for seven years. So consumers only become aware of this when they review their credit report.

So is there a way to avoid collections? The answer seems simple. Just pay your bills, but it is never that simple. For some people it is the difference between feeding their family and paying a bill. The bill would come last. There are many reasons why someone does not pay a bill in a timely manner, but it does not keep up from accumulating debt. Many Americans do  not even think twice about carrying some debt, many do not know how much they actually have in debt.