August, 2012 Taxing Olympic Gold After our Olympians step down from the medal podium and the ceremonies have closed, they are welcomed home by the U.S. Olympic Committee with prize awards in the amount of $ 25,000 for a gold medal, $15,000 for a silver medal, and $10,000 for a bronze medal. Under the tax laws of the Internal Revenue Code, this prize money is considered ordinary income, and taxed in the same way, at the same tax rates, as those of other citizens. The United States taxes its citizens on their worldwide income, which means that the prize money is taxed in the U.S. even though the event was held overseas. Under the current British tax system, an athlete is taxed by the country for its share of winnings earned in Great Britain. However, the United Kingdom has stated that it will not tax athletes who come to the 2012 Summer Olympic Games. Marco Rubio, a Republican senator from Florida, has proposed the Olympic Tax Elimination Act, which would provide tax relief to the Olympians who earned prize money from their performance at the Games. In a statement, he said "Athletes representing our nation overseas in the Olympics shouldn't have to worry about an extra tax bill waiting for them back at home." President Obama has expressed support for this bill. What is astonishing about this proposed Act is that it waters a seed of thought that the money earned by Olympians for their performance at the Olympic Games should be taxed in a different manner than those of any other athlete or hard working American. At a time when the country is in need of tax reform, the politicians should focus on the bigger picture, rather than adding yet another loophole to the tax law. Senator Rubio has received a lot of publicity and attention as a result of the proposed Olympic Tax Elimination Act. If the Act were passed, would it have cost the U.S. government any tax revenue? Probably not. A good certified public accountant would ensure that the Olympian was advised well in advance of the Games to keep detailed records of the expenses incurred to participate in the Olympic Games. These expenses, which include travel, meals, coaching costs, equipment, uniforms, training, and lodging would offset the prize money and potentially reduce the taxable income to zero. Back to School August usually brings back to school sales, fresh notebooks, sharp pencils, and new backpacks. It is a good time to take a fresh look at your child’s education and its effect on your income tax planning. If you already have a Coverdell Education Savings Account or 529 Education Savings Plan open for your child, have you considered making a contribution for 2012? While neither contribution is tax deductible for Federal purposes, the growth in the account is tax free until distributed, and remains tax free if used for specified educational purposes. Contributions to certain state sponsored 529 plans are deductible on your resident state income tax return, which could result in savings of up to 12.47% of your contributed amount. Will you be taking a distribution from a Coverdell or 529 Education Savings Plan account to pay for tuition or education related expenses? Do the expenses qualify to be used from account funds? Will you be eligible for education related credits such as the American Opportunities Credit or Lifetime Learning Credit? It is important to note that Coverdell Education Savings Account Contributions, the American Opportunity Credit and Lifetime Learning Credit are all subject to income limitations. Avoid surprises by calling us to discuss any special transactions that you plan to encounter in 2012 that may trigger income recognition and potentially make you ineligible for the contribution or credit. This could include cancellation of credit card debt, stock sales that trigger capital gains, and IRA to Roth IRA conversions. Women and Long Term Care While it is prudent for any family or individual to address issues about long term care, it is particularly advisable for women to plan ahead. Women generally find themselves in one of two places: in the caregiver role and/or outliving their spouses and needing to be cared for. Many individuals brush off the idea of purchasing long term care insurance with the thought that their family will take care of them. This usually means that the female spouse, or in the absence of a spouse, a female child, will be the care taker. The unpaid caretaker gives up wages from lost working hours, workplace promotions, or their job entirely to provide the required care for a family member. Women who find themselves as a primary caregiver also have a heightened risk of medical issues, including depression, heart disease, emotional distress, and exhaustion. This takes a toll on the entire family. The life expectancy of a woman in the United States exceeds that of a man by five years. As a woman gets older, there is a higher likelihood that she will be alone and will require long term care. Having choices for the care involves resources and planning. If these are concerns of yours or someone you know, please call us to begin the appropriate discussions and planning steps. We can help you to identify if long term care insurance is something that is right for you and your family. As always, if you have any questions about these or any other matters, do not hesitate to call us. Remember, We’re Here For You!!