Education Tax Credits, Part I

Posted on November 2, 2011 by taxblogger

Tax and Money Tip of the Week
Education Tax Credits, Part I
November 2, 2011 | No. 66

The American Opportunity Tax Credit

With the current weak economic conditions, many people are considering additional education to refresh skills or acquire new ones.  In the next several weeks, we will discuss several tax breaks that may be available to you if you are going back to school or sending a child off to college. 

Here is a brief overview of the American Opportunity Tax Credit and how it can be a real benefit to help ease the burden of higher education costs.

  • Maximum credit of $2,500 per eligible student
  • Up to $1,000 of the credit is “refundable” if no tax is due
  • Credit is limited to couples with modified adjusted gross income (MAGI) and phases out completely at $180,000 if married filing jointly, $ 90,000 if filing single, head of household or qualified widow(er)
  • Available only for the first 4 years of postsecondary education
  • Available only for 4 tax years per eligible student (including any year(s) the Hope Credit was claimed)
  • An eligible student is defined as one that is pursuing an undergraduate degree or recognized education credential and is enrolled at least half time
  • Qualified expenses are tuition and fees required for enrollment, course related books, supplies and equipment
  • Payments include those made in 2011 for academic periods beginning in 2011 and in the first three months of 2012.

Call us if we can help you determine if you qualify.  More on Education Credits next week.
 

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Money Tip – Investing 101 #4

Posted on October 26, 2011 by taxblogger

Tax and Money Tip of the Week
Money Tip – Investing 101
October 26, 2011 | No. 65

This week we have a more tips on investing concepts.

This series is not intended as investment advice, but only a general discussion of investing in the new millennium and in the age of the Internet, High Frequency Trading, and Machines.

Considering all the volatility over the last few weeks, here are some thoughts to consider investing today, that our parents may not have taught us.

KEY LESSONS/considerations in Managing Your Money in the new environment:

  1. It’s OK not to play.
  2. Have a goal and an exit plan.
  3. Never fall in love with a stock/mutual fund.
  4. Always have a sell stop loss, mental or actual,  decided.
  5. In trendless, indecisive markets, be agile and nimble. Take gains quickly.

If you need help navigating your financial direction, feel free to contact us.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Clarification of Qualified Medical Deductions

Posted on October 19, 2011 by taxblogger

Tax and Money Tip of the Week
October 19, 2011 | No. 64
Clarification of Qualified Medical Deductions

Tax Court Clarifies Qualified Medical Deductions

Up until now, it has been unclear what medical expenses are eligible for a tax deduction.  A strict reading of the prior rules seemed to indicate only expenses incurred to pay for “skilled” caregivers was a qualified expense.

In a recent case (Est. of Baral, 137 TC No. 1) the Tax Court ruled that costs of a caregiver for a dementia patient qualifies as a medical expense.  In this case, a mother was diagnosed with the disease and her doctors determined she needed 24-hour supervision.  Her son hired caregivers to assist her.  Although the caregivers were not licensed health care providers, the payments were deemed as medical expenses.  Her doctor certified that her dementia endangered her health because she otherwise would not take her medications.

Furthermore, the Court ruled that such deductions are not limited to dementia patients.  The cost of personal care services qualifies for a medical expense for any patient unable to perform at least two of the six activities of daily living—eating, toileting, transferring, bathing, dressing and continence.  The certifying professional can be a doctor, registered nurse or licensed social worker.

If you know of anyone in this situation, please let them know.  These patients definitely need every break they can get.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Don’t Miss the October 17 Deadline

Posted on October 5, 2011 by taxblogger

Tax and Money Tip of the Week
October 5, 2011 | No. 63
Don’t Miss the October 17 Deadline

If you need to file a Form 1040 (individual return), the deadline to file is October 17, 2011.  This assumes you had filed for an extension prior to April 18, 2011.  You also have until October 17, 2011 to fund a SEP-IRA for tax year 2010.

As a reminder, putting your tax returns on extension can be a good thing – but penalties to miss the extension deadline can be steep, up to 25% penalty of taxes owed, so make sure that you make the October 17th deadline.

Give us a call if you need help meeting your deadline.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Money Tip – Investing 101 #3

Posted on September 28, 2011 by taxblogger

Tax and Money Tip of the Week
Money Tip – Investing 101
September 28, 2011 | No. 62

This week we have a very important tip on investing concepts.

This series is not intended as investment advice, but only a general discussion of investing in the new millennium and in the age of the Internet, High Frequency Trading, and Machines.

Considering all the volatility over the last few weeks, here are some thoughts to consider investing today, that our parents may not have taught us.

Here’s a lesson that the 2008-2009 Great Recession taught a lot of people:

KEY LESSON:
Learn what Liquidity (or have a lot of cash or money markets available) means.  And know where this money exists and have access to it: to pay your bills, meet obligations, and the unexpected.

RECOMMENDED:
Classic certified financial planning advice says you should have 9 months of your monthly obligations of cash at a minimum in safe places, easily accessible.  We like to see 12 months of cash reserves.

More on investing next week.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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IRA Terms You Sould Know

Posted on September 21, 2011 by taxblogger

Tax and Money Tip of the Week
September 21, 2011 | No. 61
IRA Terms You Sould Know

Three Terms Regarding Roth Conversions

There were a lot of discussions this recent tax season regarding the tax law changes on Roth conversions.  Those conversations will likely continue this year, as some changes to your new Roth can be made through October 2011.
 
Here are three terms you should know:
 
Conversion:  A conversion is the act of moving your retirement account assets from one type of IRA to another.
 
You can convert all or part of a traditional IRA to a Roth IRA.  Just remember the amount you convert is taxable, assuming you have no basis in your traditional IRA.
 
Note:  Only conversions made in 2010 allowed you the option to pay one half the tax liability in 2011 and the other half in 2012.  Any conversions made in 2011, and the subsequent taxes, will need to be paid on your 2011 tax return.
 
Recharacterization:  After making a Roth conversion, you can choose to transfer the assets back to your traditional IRA.  Recharacterizing cancels the initial conversion as if it never happened.  This could be good tax planning if the value of the assets decline after you converted.  While the loss is not deductible, you’ll avoid paying tax on the full amount of the initial conversion.
 
For a 2010 conversion, you have until October 17, 2011 to do a recharacterization.
 
Reconversion:  A reconversion is what happens after you convert a traditional IRA to a Roth, later recharacterize, and then decide to make another conversion.
 
A waiting period applies that limits you to one reconversion per year.
 
Give us a call to see if any of these tax planning tips could help you.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Eight Tips About Rental Income and Expenses

Posted on September 14, 2011 by taxblogger

Tax and Money Tip of the Week
September 14, 2011 | No. 60
Eight Tips About Rental Income and Expenses

Do you Rent Property to Others?

If you rent property to others you’ll want to read the following eight tips about rental income and expenses.

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them.  Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.

  1. When to report income:  You generally must report rental income on your tax return in the year that you actually receive it.
  2. Advance rent:  Advance rent is any amount you receive before the period that it covers.  Include advance rent in your rental income in the year you receive it, regardless of the period covered.
  3. Security deposits:  Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
  4. Property or services in lieu of rent:  If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income.  If the services are provided at an agreed upon or specified price, that price is the fair market value, unless there is evidence to the contrary.
  5. Expenses paid by tenant:  If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information.
  6. Rental expenses:  Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.
  7. Personal use of vacation home:  If you have any personal use of a vacation home, or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use.  If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.
  8. Depreciation:  Properly depreciate the rental and all improvements.  When you initially offer a property as a rental you need to separate the land value from the home value because land never depreciates.  A residential property would then be depreciated over 27.5 years.  A commercial property is depreciated over 39 years.  Any subsequent improvements that have a useful life of more than one year need be depreciated over their useful lives.  New carpet, for example, has a useful life of five years.

Rental income and expenses are typically reported on Form 1040-Schedule E.

As always, we suggest you give us a call before going into the rental business—-not after!

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Don’t Forget: September 15th, 2011 Tax Payments Are Due

Posted on September 8, 2011 by taxblogger

Tax and Money Tip of the Week
September 8, 2011 | No. 59

Don’t Forget:  September 15th, 2011
Tax Payments Are Due

This is the time of year in our CPA practice that I work with small business owners and individuals to perform tax checkups to help them project their tax liabilities for 2011 and make tax saving recommendations of moves they can make between now and December 31, 2011. Frequently, just defining the amount of taxes they owe via these planning services helps manage their cash flow so the businesses and individuals don’t have a big amount and/or surprise each Spring when they prepare their tax returns.

Coming up September 15, 2011 is the date in which the 3rd installment for individuals that have income that is not taxed and withheld (like W-2 income) is due.

Self employed businesses, e.g. Proprietor Schedule C filers, folks that own S Corporations, Partnerships, LLCs, or other flow-through entities must estimate their unpaid income and/or self-employment taxes for the period January 1-August 31, 2011 and pay ½ of this amount to IRS and/or NC Dept of Revenue on September 15, 2011 and the other ½ of this amount on or before January 15, 2012.  (April 15th and June 15th of each year are also Quarterly Estimated Tax Payment dates that have also passed by if you weren’t aware)

The rules for estimated tax payments depend on your modified adjusted gross income for 2011. “Safety” estimates can be designed to avoid penalties and interest, optimize cash flow, and save taxes. Call us for help.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Paying Wages to Your Children

Posted on August 31, 2011 by taxblogger

Tax and Money Tip of the Week
Paying Wages to Your Children
August 31, 2011 | No. 58

Parents Employing Their Own Children

Payments for the services of a child under the age of 18, who works for his or her parent in a trade or business, are not subject to Social Security, Medicare, and North Carolina Unemployment taxes, if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.
 
If these payments are for work, other than in a trade or business, such as domestic work in the parent’s private home, they are not subject to Social Security and Medicare taxes until the child reaches age 21.   Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to federal unemployment tax.  Depending on the amount of payments for services, they could be subject to federal, state, school and city income tax withholdings.
 
Paying wages to a child can be an effective income-shifting strategy for a taxpayer who owns a business or income-producing property.  Income may be taxed at the child’s lower rate, or escape tax altogether.  The child can contribute to a retirement plan.  If a child earns enough from the family business during college years, the child may be able to claim an education credit that the parents lose because of AGI limitation. Earned income is not subject to kiddie tax regardless of age.
 
A child’s wages are deductible by the parent-employer only if: 

  1. the work is done in connection with the parent’s trade of business (or income-producing property),
  2. the child actually renders the services and
  3. the payments are actually made. 

The payments must be reasonable in relation to the services rendered.  Maintain records showing services performed and wages paid. 

Call us if you need help.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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Money Tips: Investing 101, #2

Posted on August 24, 2011 by taxblogger

Tax and Money Tip of the Week
Money Tip – Investing 101
August 24, 2011 | No. 57

This week we continue our series on investing concepts. 

This series is not intended as investment advice, but only a general discussion of investing in the new millennium and in the age of the Internet, High Frequency Trading, and Machines.

Considering all the volatility over the last few weeks, here are some thoughts to consider for investing today, that our parents may not have taught us:

  1. Always limit your losses on any stock or mutual fund to 7-8%; frequently, you can limit your losses sooner.  Let your gains run.
  2. Know when its time to sell a stock or mutual fund.
  3. In today’s market, know how to be agile and nimble when necessary.
  4. ALWAYS protect your capital.

More on investing next week.
Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.

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