Taxes

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529 Education Savings Plan Updates

529 Education Savings Plan UpdatesIn July, the Internal Revenue Service (IRS) and Department of the Treasury announced new regulations related to recent tax law changes that affect 529 plans. The 529 education savings plan updates have to do with k-12 education and rollovers to Achieving a Better Life Experience (ABLE) accounts.

The 2017 Tax Cuts and Jobs Act (TCJA) allows distributions from 529  plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (k-12) public, private or religious school of the beneficiary’s choosing.

Another TCJA change allows funds to be rolled over from a designated beneficiary’s 529 plan to an ABLE account for the same beneficiary or a family member. ABLE accounts are tax-favored accounts for certain people who become disabled before age 26, designed to enable these people and their families to save and pay for disability-related expenses. The regulations would provide that rollovers from 529 plans, together with any contributions made to the ABLE account cannot exceed the annual ABLE contribution limit ($15,000 for 2018).

To learn more about the changes, visit the IRS official website.

To learn more about 529 plans and how they can help beneficiaries, as well as those who contribute funds, click on our article below.

Grandparents Can Help Pay Grandchildren’s Education

By |September 10th, 2018|College Planning, Current Affairs, Taxes|

New Tax Law Tempers Marriage Penalties

New tax law tempers marriage penalties.One unintended feature of U.S. income tax law is that the combined tax liability of a married couple may be higher than their combined tax burden if they had remained single. This is often referred to as the marriage penalty within the law. Congress’ new tax law tempers marriage penalties a bit.

“Marriage penalties and bonuses have a significant impact on the combined tax burden of couples,” wrote Amir El-Sibaie, an analyst with the Center for Federal Tax Policy at Tax Foundation. “Penalties affect couples at very high and very low incomes, and bonuses affect many middle-income couples with disparate incomes.”

Changes that would eliminate marriage penalties and bonuses would drastically impact the current distribution of taxes paid. This is politically difficult to accomplish. As a compromise, in the recently-passed Tax Cuts and Jobs Act, Congress opted to incrementally reduce the effects.

While our nation’s tax laws remain extremely complicated, a few simple changes should bring some relief to married couples and families in 2018.

As an example, most federal income tax brackets for joint filers will now be double those for singles, thereby eliminating or reducing the marriage penalty for many people. (Married couples in certain high-income brackets will continue to experience higher rates than singles in the same brackets, however.) The new law also doubled the child tax credit to $2,000, and all dependents ineligible for the child tax credit are eligible for a new $500 per-person family tax credit (source: The Wall Street Journal).

By |March 26th, 2018|Taxes|

Congress Finalizing Tax Reform Bill

The U.S. House and Senate have each passed different tax reform bills and are working together to reconcile the differences. The goal is to deliver a final tax reform bill to the president before Christmas.

“Both bills are big improvements to America’s out-of-date tax code,” wrote Adam Michel, a policy analyst for the Heritage Foundation, in a recent article comparing the two packages. “Both bills cut taxes for individuals and businesses, largely repeal the state and local tax deduction, and allow businesses to invest more in the American economy through temporary expensing.”

Though nothing has been finalized as of this writing, a common theme seems to be allowing fewer itemized deductions for individuals and to balance that by increasing standard deduction amounts. For example, the personal exemption of $4,050 for income taxes would be eliminated and offset with a higher standard deduction of $12,000 for individuals and $24,000 for married couples. (The current standard income tax deduction is about half that – $6,350 for individuals and $12,700 for married couples.) Deductions for state and local income and sales taxes (SALT) will likely be capped at $10,000. In contrast, the child tax credit is expected to increase from $1,000 currently to $1,600 or more.

In anticipation of potential changes, those who typically itemize on their income tax returns may want to consider accelerating deductible expenses in 2017. For example, they could pay second-half property taxes and/or make a January mortgage payment before year-end. They could also make their fourth-quarter estimated state income tax payment by year-end.

By |December 18th, 2017|Current Affairs, Taxes|

Year-End Tax Saving Strategies

Lupe Camargo, financial plannerNow is a perfect time to check for any remaining opportunities to help minimize your tax bill before 2017 comes to a close. There are many year-end tax saving strategies for you to consider.

At Perspective Financial Services, we take a proactive approach to minimize our clients’ tax bills through a variety of investment strategies. Selling a security in a taxable account at a loss and replacing it with another security of the same asset class can help offset some of your capital gains tax; this is referred to as tax loss harvesting. We also research mutual funds that may generate a capital gains distribution before making end of year purchases; this helps avoid unnecessary capital gains taxes on new investments.

There are additional things you can do, with the help of your financial planner. Here is a checklist of things to think about.

When possible be proactive about the timing of your income. This can make a significant impact on your tax bill.

  • Defer a bonus or a sale of appreciated property to the following year when it becomes advantageous to avoid the income this year.
  • Pay expenses this year, such as fourth quarter state income taxes or medical expenses. This helps especially when next year’s income will be less than this year.
  • Increase your federal income tax withholding to soften the blow of a significant tax bill.

Take advantage of the vehicles that not only help you plan for the future, but give the added bonus of reducing your income taxes.

  • Max out your IRA contributions, and take advantage of the catch-up if you are over 50 years old.
  • If you are over 70 1/2 years old, or you have an inherited IRA, do not forget to take your required minimum distribution. The penalties are very steep if you do not.

If you are planning to gift money to family or charities, do so before the end of the year.

  • Give $14,000 per individual annually in federal tax-free gifts.
  • Make planned charitable contributions and take advantage of the charitable rollover provision if you are over 70 1/2 years of age.
By |December 4th, 2017|Advisors, Charitable Giving, Taxes|