Back to School
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 2014? 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 up to 12% 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 distributed 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 2014 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.
(Reprinted from August 2012)
To Write Is To Learn
Research has been done which proves that individuals learn by writing. Since they cannot write as fast as they hear someone’s words, they must re-phrase and para-phrase their notes, which helps to process and internalize the information.
Pizza and Tutoring Is Not Deductible
An owner of a tax preparation and consulting business hired her children to perform office tasks such as shredding, copying, stuffing envelopes, and shopping for office supplies. She did not pay them cash wages, but instead bought them pizza and paid for tutoring. She deducted the pizza and tutoring ‘wages’ as a business expense. The Tax Court disallowed the deduction, indicating that the work performed by the children was for parental training and discipline and did not represent typical work of employees. Ross, TC Summ Op 2014-68
Increase in Computer Generated IRS Notices
It is no secret that the IRS has fewer staff to ensure taxpayer compliance than in recent years. As a result of the decline in manpower, we have seen an increase in computer generated tax notices received by our clients this summer. These notices, often called ‘matching notices’ match income reported by employers, banks and brokerage firms to the income reported on the tax return by the taxpayer. In many cases, the information reported on the tax notice is incorrect, yet requires a lengthy, written response, which costs taxpayers and tax preparers additional time and resources.
If you have questions about any of the topics discussed in this newsletter, please feel free to call us.
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