Need for Long Term Care?
Monday, July 25, 2011
Wednesday, July 20, 2011
Tuesday, July 19, 2011
Monday, July 18, 2011
You have two filing status options: married filing jointly, or married filing separately.
Married Filing Jointly
You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. On a joint return, you report your combined income and deduct your combined allowable expenses. You can file a joint return even if one of you had no income or deductions.
According to the IRS, if you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses.
We recommend that if you and your spouse each have income, you figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). You can choose the method that gives you the lower combined tax.
Joint Responsibility. Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.
Married Filing Separately
You can choose married filing separately as your filing status if you are married. This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return.
We Can Help
Drop us a line if you're unsure of which status to file under.
Thursday, July 14, 2011
The home energy credit applies to energy-related improvements, such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air-conditioning systems to an existing home that is your primary residence. The tax credit is not available on rental properties or new construction.
The tax credit is 10% of the cost of the home improvement, up to a maximum of $500. There is a lifetime limit of $500, so if you took a $500 credit in 2010, you do not qualify in 2011. The tax credit expires December 31, 2011.
The credit on some items have been reduced below $500:
• Windows limited to $200; Energy Star qualification.
• Air conditioners, water heaters, and biomass stoves limited to $300.
• Furnace and boiler improvements limited to $150 and must meet certain standards.
• $50 credit for advanced main air circulating fans.
Further, the Residential Energy Efficient Property Credit is a nonrefundable energy tax credit that helps individual taxpayers pay for certain alternative-energy equipment, such as solar hot water heaters, geothermal heat pumps, and wind turbines. The maximum amounts for a credit equal 30% of the cost of qualified property, with no upper limit. This credit expires on December 31, 2016, and is available for new and existing homes, whether primary or second. Rentals do not qualify.
We're happy to help you sort out the tax credits available for your home improvements this summer. Just give us a call or send us an email.
Wednesday, July 13, 2011
Tuesday, July 12, 2011
But the investment is well worth it. According to the U.S. Census Bureau, individuals with a bachelor's degree earn more than double those with just a high school diploma.
The two most popular college savings programs are 529 plans and Coverdell Education Savings Accounts. Whichever you choose, be sure to start when your child is young. The sooner you begin, the less money you will have to put away each year.
Example: Suppose you have one child, age six months, and you estimate that you'll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you'll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until your son is six years old, you'll have to save almost double that amount every year for twelve years.
Financial Calculator: College Savings Planner
Use this calculator to help develop and fine-tune your child's college education savings plan.
How Much Will College Cost?
Based on the survey completed for the 2010 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2010-11 was:
• $16,140 per year for 4-year public (in state) colleges and universities.
This is an increase of 6.1% from 2009-10 findings.
• $36,993 per year for 4-year private colleges and universities.
This is an increase of 4.3% from 2009-10 findings.
It should be noted that, on average, full-time students receive $16,000 of financial aid per year in the form of grants and tax benefits for private 4-year institutions, $6,100/yr for public 4-year institutions, and $3,400/yr for public 2-year institutions.
Saving with 529 Qualified Tuition Plans
Section 529 plans, also known as Qualified Tuition Programs, are the best choice for many families.
Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations:
1. The Prepaid Education Arrangement. You essentially buy future education at today's costs, by buying education credits or certificates. This is the older type of program, and it tends to limit the student's choice of schools within the state.
2. Education Savings Accounts. You contribute to an account earmarked for future higher education.
Tip: When approaching state programs, one must distinguish between what the federal tax law allows and what an individual state's program may impose.
You may open a Section 529 plan in any state. But when buying prepaid tuition credits (less popular than savings accounts), you often need to apply the credits to a specific college or group of colleges.
Unlike certain other tax-favored higher education programs, such as the Hope and Lifetime Learning Credits, federal tax law doesn't limit the benefit only to tuition. Room, board, lab fees, books, and supplies can be purchased with funds from your 529 Savings Account. (Individual state programs could be narrower.)
The key parties to the program are the Designated Beneficiary, the student-to-be, and theAccount Owner, who is entitled to choose and change the beneficiary and who is normally the principal contributor to the program.
There are no income limits on who may be an account owner. There's only one designated beneficiary per account. Thus, a parent with three college-bound children might set up three accounts. (Some state programs don't allow the same person to be both beneficiary and account owner.)
Tax Rules Relating to 529 College Savings Plans
Income Tax. Contributions made by the account owner or other contributor are not deductible for federal income tax purposes. Earnings on contributions grow tax-free while in the program.
Distributions from the fund are tax-free to the extent used for qualified higher education expenses. Qualified expenses include tuition, required fees, books, supplies, equipment, and special needs services. For someone who is at least a half-time student, room and board also qualify.
Tip: In 2009, the American Recovery and Reinvestment Act (ARRA) added expenses for computer technology/equipment or Internet access to the list of qualifying expenses. Software designed for sports, games, or hobbies does not qualify, unless it is predominantly educational in nature. In general, however, expenses for computer technology are not qualified expenses for the American Opportunity Credit, Hope Credit, Lifetime Learning Credit, or tuition and fees deduction.
Gift Tax. For gift tax purposes, contributions are treated as completed gifts even though the account owner has the right to withdraw them - thus they qualify for the up-to-$13,000 annual gift tax exclusion. One contributing more than $13,000 may elect to treat the gift as made in equal installments over that year and the following 4 years, so that up to $65,000 can be given tax-free in the first year.
Estate Tax. Funds in the account at the designated beneficiary's death are included in the beneficiary's estate - an odd result, since those funds may not be available to pay the tax.
Funds in the account at the account owner's death are not included in the owner's estate, except for a portion thereof where the gift tax exclusion installment election is made for gifts over $13,000. For example, if the account owner made the election for a gift of $65,000 in 2011, a part of that gift is included in the estate if he or she dies within 5 years.
Tip: A Section 529 program can be an especially attractive estate-planning move for grandparents. There are no income limits, and the account owner giving up to $65,000 avoids gift tax and estate tax by living 5 years after the gift, yet has the power to change the beneficiary.
State Tax. State tax rules are all over the map. Some reflect the federal rules, some quite different rules. For specifics of each state's program, see http://www.collegesavings.org.
Saving with Coverdell Education Savings Accounts
The total contributions for the beneficiary of a Coverdell Education Savings Account (ESA) cannot be more than $2,000 in any year, no matter how many accounts have been established. (A beneficiary is someone who is under age 18 or is a special needs beneficiary.)
The beneficiary will not owe tax on the distributions if they are less than a beneficiary's qualified education expenses at an eligible institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.
Here are some things to remember about distributions from Coverdell accounts:
• Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books, and fees.
• There is no tax on distributions if they are for an eligible educational institution. This includes any public, private, or religious school that provides elementary or secondary education as determined under state law.
• The Hope and Lifetime Learning Credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
• If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
Considering the wide differences among state plans, federal and state tax issues, and the dollar amounts at stake, please call us before getting started with any type of college savings plan.
Wednesday, July 6, 2011
Tuesday, July 5, 2011
The Federal Unemployment Tax Act surtax is set to expire Thursday after House Republicans refused to extend the 35-year-old “temporary” unemployment surtax.
“The death of any tax on jobs—no matter how big or small—is a historic moment and one to be celebrated,” Camp said in a statement. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes—once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.”
The original purpose of the “temporary” 0.2 percent surtax was to repay federal general revenues used to provide federal unemployment benefits paid in the wake of the 1973-75 recession. While the tax raised $27 billion (adjusted for inflation) and the general revenues were fully repaid by 1987, the 0.2 percent surtax remains on the books today. Since 1987, the tax has raised an additional $46 billion (adjusted for inflation) above and beyond what was needed at the inception of the tax in 1976.
The expiration of the surtax will reduce federal unemployment taxes by $1.4 billion per year, or about $14 per employee per year. That relief slightly offsets the effect of much larger state unemployment tax hikes imposed in recent years to pay for record unemployment benefit spending. Since unemployment benefits are not directly linked to the “temporary” federal tax, its expiration will not affect current or future unemployment benefit receipts.
Without the 0.2 percent surtax, the 6.2 percent FUTA tax rate will fall to 6.0 percent, according to CCH. It was last extended in 2009 as part of the Worker, Homeownership and Business Assistance Act.
Camp's office provided a timeline of the successive extensions of the surtax.