Educational Tax Savings

Tax Tip

Take Advantage of Education Tax Benefits

The tax code includes a number of incentives that, with proper planning, can provide tax benefits while you, your spouse, or children are being educated. Which of these options will provide the greatest tax benefit depends on each individual’s particular circumstances. The following is an overview of the various possibilities.

Student Loans - A major planning issue is how to finance your children’s education. Those with substantial savings simply pay the expenses as they go while others begin setting aside money far in advance of the education need, perhaps utilizing a Coverdell account or Sec. 529 plan. Others will need to borrow the funds, obtain financial aid, or be lucky enough to qualify for a scholarship. Although student loans provide one ready source of financing, the interest rates are generally higher than a home equity debt loan, which can also provide a longer repayment term and lower payments.

When choosing between a home equity loan or student loan, keep in mind the following limitations: (1) Interest on home equity debt is deductible only if you itemize, and then only on the first $100,000 of debt, and not at all to the extent that you are taxed by the alternative minimum tax; and (2) student loans must be single-purpose loans—the interest deduction is available even if you do not itemize but is limited to $2,500 per year, and the deduction phases out for joint filers with income (AGI) between $130,000 and $160,000 ($65,000 to $80,000 for unmarried taxpayers). 

Gifting Low Basis Assets - Another frequently used tax strategy to finance education is to gift appreciated assets (typically stock) to a child and then allow the child to sell the stock to pay for the education. This results in transferring any gain on the stock to the child at a time when the child has little or no other income; tax on the gain is avoided or is at the child’s low rate.   With the lowest of the long-term capital gains rates currently being zero, Congress   curtailed income shifting to children by making most full-time students under the age of 24 subject to the “kiddie tax.” This effectively taxes their unearned income at their parents’ tax rates and makes the gifting of appreciated assets to a child less appealing as a way to finance college expenses.

Education Credits - The tax code provides tax credits for post-secondary education tuition paid during the year for the taxpayer and dependents. Currently, there are two types of credits: the American Opportunity Credit, which is limited to any four tax years for the first four years of post-secondary education and provides up to $2,500 of credit for each student (some of which may be refundable), and the Lifetime Learning Credit, which provides up to $2,000 of credit for each family each year. The American Opportunity Credit is phased out for joint filers with incomes between $160,000 and $180,000 ($80,000 to $90,000 for single filers). The 2015 phaseout ranges for the Lifetime Learning Credit are $110,000–$130,000 for married joint and $55,000–$65,000 for others. Neither credit is allowed for married individuals who file separately. Careful planning for the timing of tuition payments can provide substantial tax benefits.

Education Savings Programs - For those who wish to establish a formalized long-term savings program to educate their children, the tax code provides two plans. The first is a Coverdell Education Savings Account, which allows the taxpayer to make $2,000 annual nondeductible contributions to the plan. The second plan is the Qualified Tuition Plan, more frequently referred to as a Sec. 529 plan, with annual nondeductible contributions generally limited to the gift tax exemption for the year ($14,000 in 2015). Both plans provide tax-free earnings if used for qualified education expenses. When choosing between a Coverdell or Sec. 529 plan, keep the following in mind: (1) Coverdell accounts can be used for kindergarten through post-secondary education and become the property of the child at age of majority, and contributions are phased out for joint filers between $190,000 and $220,000 ($95,000 and $110,000 for others) of income (AGI); and (2) Sec. 529 plans are only for post-secondary education, but the contributor retains control of the funds and there is no phase out of the contribution based on income. 

Educational Savings Bond Interest—There is also an exclusion of savings bond interest for Series EE or I Bonds that were issued after 1989 and purchased by an individual over the age of 24. All or part of the interest on these bonds is exempt from tax if qualified higher education expenses are paid in the same year that the bonds are redeemed. As with other benefits, this one also has a phase-out limitation for joint filers with income between $115,750 and $145,750 ($77,200 and $92,200 for unmarried taxpayers, but those using the married filing separately status do not qualify for the exclusion). The exclusion is computed on IRS Form 8815, Exclusion of Interest from Series EE and I U.S. Savings Bonds Issued After 1989. 

If you would like to learn more about these benefits, or to work out a comprehensive plan to take advantage of them, please give this office a call.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Police Officer Dedcutions

Tax Tip

Tax Deductions for:

Peace Officers Occupational Series

Key expenses

The information provided in this brochure is an abbreviated summary of the rules for the job-related expenses applicable to peace officers.

For additional details as to specific business expenses, the records required and the various governmental regulations,

consult the firm providing this brochure.

PROFESSIONAL FEES & DUES:

Dues paid to professional societies related to your profession are deductible. These could include professional organizations, business leagues, trade associations, chambers of commerce, boards of trade and civic organizations. However dues paid for memberships in clubs organized for business, pleasure, recreation or other social purpose are not deductible. These could include country clubs,golf and athletic clubs, airline clubs, hotel clubs and luncheon clubs.

UNIFORMS & UPKEEP EXPENSES:

Generally, the costs of your uniforms are fully deductible if they aren’t provided to you without charge by your employer. IRS rules specify that work clothing costs and the cost of its maintenance are deductible if: (1) the uniforms are required by your employer (if you’re an employee); and (2) the clothes are not adaptable to ordinary street wear. Normally, the employer’s emblem attached to the clothing indicates it is not for street wear. The cost of protective clothing

(e.g., safety shoes or goggles) is also deductible.

AUTO TRAVEL:

Your auto expense is based on the number of qualified business miles you drive.  Expenses for travel between business locations or daily transportation expenses  between your residence and temporary work locations are deductible; include them as business miles. Expenses for your trips between home and work each day, or between home and one or more regular places of work, are COMMUTING expenses and are NOT deductible.  Document business miles in a record book as follows: (1) give the date and business purpose of each trip; (2) note the place to which you traveled; (3) record the number of business miles; and (4) record your car’s odometer reading at both the beginning and end of the tax year. Keep receipts for all car operating expenses – gas, oil, repairs, insurance, etc. – and of any reimbursement you received for your expenses.

OUT-OF-TOWN TRAVEL:

Expenses incurred when traveling away from “home” overnight on job-related and continuing-education trips that were not reimbursed or reimbursable by your employer are deductible. Your “home” is generally considered to be the entire city or general area where your principal place of employment is located.  Out-of-town expenses include transportation, meals, lodging, tips and miscellaneous items like laundry, valet, etc. Document away-from-home expenses by noting the date, destination and business purpose of your trip. Record business miles if you drove to the out-of-town location. In addition, keep a detailed record of your expenses – lodging, public transportation, meals, etc. Always list meals and lodging separately in your records. Receipts must be retained for each lodging expense.  However, if any other business expense is less than $75, a receipt is not necessary if you record all of the information timely in a diary. You must keep track of the full amount of meal and entertainment expenses even though only a portion of the amount may be deductible.

EQUIPMENT & REPAIRS:

Generally, to be deductible, items must be ordinary and necessary to your job as a peace officer and not reimbursable by your employer. Record separately from other supplies the cost of business assets that are expected to last longer than one year and cost more than $200. Normally, the cost of such assets are recovered differently on your tax return than are other recurring, everyday business expenses such as flashlights, batteries and other supplies.

TELEPHONE EXPENSES:

The basic local telephone service costs of the first telephone line provided in your residence are not deductible. However, toll calls from that line are deductible if the calls are business-related. The costs (basic fee and toll calls) of a second line in your home are also deductible if the line is used exclusively for business.

When communication equipment, such as a cell phone, is used part for business and part personally the cost of the equipment must be allocated to deductible business use and non-deductible personal use. Keep your bills for cellular phone use and mark all business calls.

CONTINUING EDUCATION:

Educational expenses are deductible under either of two conditions: (1) your employer requires the education in order for you to keep your job or rate of pay; or (2) the education maintains or improves your skills as a peace officer. Costs of courses that are taken to meet the minimum requirements of a job, or that qualify you for a new trade or business, are NOT deductible.

MISCELLANEOUS EXPENSES:

Generally, meals consumed during hours of duty by peace officers

Are nondeductible.  Expenses of looking for new employment in your present line of work are deductible – you do not have to actually obtain a new job in order to deduct the expenses. Out-of-town job-seeking expenses are deductible only if the primary purpose of the trip is job seeking, not pursuing personal activities.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Adjust your 2015 with holding

Tax Tip

Have you adjusted to the new year? That is, have you adjusted your tax planning to reflect the new year's increased limits on contributions to tax-favored accounts? These changes will affect your 2015 federal income tax return, and the sooner you incorporate them into your planning the more tax dollars you can save.

Here are some new contribution amounts for 2015.

Retirement plans. The 401(k) contribution limit increased to $18,000 this year. In addition, if you're turning 50 during 2015, you can add another $6,000.

SIMPLE plan contributions increased for 2015 also. You can put up to $12,500 in your SIMPLE account this year, plus another $3,000 if you're age 50 or over.

Contributions to employer-sponsored retirement plans reduce your taxable income because your employer deducts amounts you specify from your paycheck before taxes. You might also be able to benefit from a "savers" credit of up to $2,000.

Health savings accounts (HSAs). For 2015 you can contribute up to $3,350 to your HSA when you have a qualifying health policy offering individual coverage. The contribution limit is $6,650 for family coverage. If you're age 55 or over, you can add an additional $1,000.

An HSA is a special savings account that offers a tax-advantaged way to offset your medical expenses. You can make tax-deductible contributions to an HSA when you purchase a qualifying health insurance policy. Your contributions are deductible even if you don't itemize.

Give us a call for updates on other tax-sheltered accounts offering significant breaks for 2015.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Ten Forty Plus ceo Joseph C Becker's grand daughter

Tax Preparation Tips - Hiring Family

Ten Forty Plus Quality Tax Preparation and Financial Services

2015 Standard Mileage Rate

Tax Tip

The Internal Revenue Service recently issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

•  57.5 cents per mile for business miles driven (includes a 24 cent                         per mile allocation for depreciation);

•  23 cents per mile driven for medical or moving purposes; and

•  14 cents per mile driven in service of charitable organizations.

CAUTION: With the recent substantial drop in gas prices there is a very good chance the IRS will adjust the standard mileage rates mid-year to reflect the lower gas prices as they have done in prior years when gas prices spiked during the year.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set and has been 14 cents for over 15 years.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

If you have questions related to best methods of deducting the business use of your vehicle or the documentation required, please give this office a call.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

You need to understand your bookkeeping records to understand your business

Bookkeeping Tip

Use both general and subsidiary ledgers to make better business decisions

Prudent business managers don't relegate their company's recordkeeping to the accounting department — at least not entirely. That doesn't mean managers have to be CPAs or debit-and-credit experts. But having a basic understanding of a business's accounting records shouldn't be considered optional. More than one firm has floundered because the company continued to spend beyond its means, suffering cash flow shortages while managers remained in the dark — until the accounting department showed up with bad news.

Central to any modern accounting system is the general ledger, also known as the book of accounts. It's "general" because it contains all the accounts of the business. These include balance sheet accounts such as cash, accounts receivable, accounts payable, property and equipment, owner's equity, and the like. Also included are accounts presented on the profit and loss statement: sales revenue, salary and administrative expense, cost of goods sold, and so on. If the accounts are accurate, a report from the general ledger known as a "trial balance" will show that debits (entries on the left side of the ledger) and credits (entries on the right) agree. That's the essence of double-entry bookkeeping. It's simply a way of making sure that financial transactions are recorded accurately.

A business may also maintain separate accounting journals and subsidiary ledgers, sometimes called "books of original entry" because that's where transactions are first recorded before information is "posted" (transferred) to the general ledger. The detail in the subsidiary substantiates the account balance in the general ledger.

Why use subsidiary ledgers?

For one thing, recording every accounting transaction directly to the general ledger can make analysis challenging and tedious. Subsidiary ledgers focus on a single type of transaction such as accounts receivable or accounts payable. By analyzing an accounts payable subsidiary ledger, for example, a manager might discover problems with collections and payments that may have gone undetected if buried in the general ledger.

In a similar way, an accounts receivable subsidiary ledger contains the individual accounts of a company's charge clients. Tracking customer payments and balances is, therefore, simplified. Maintaining separate cash receipt and disbursement journals may provide a similar benefit, making it clear, at a glance, where the company is getting and spending its cash.

A foundational knowledge of your company's financial records can help you make better decisions and keep your business on track. Call us if you have any questions.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Get your taxes prepared by a tax professional at a lower cost.

Why pay double to get your taxes prepared?

You need a professional Experienced company open 12 months of the year

Tax Season Begins January 20, 2015. 

Refund Anticipation Loans are back.  If you qualify, borrow up to $3,000.00 on your tax refund.

We have been serving Houston for the since 1993.  Open 7 days a week from 6am to 10 pm during tax season.  No Return is too easy or too complicated for us.  Do your taxes from the comfort of your home or our office. 

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Tax Preparation Tips - Charitable Gifts

Tax Preparation Tips - Charitable Gifts

Ten Forty Plus Tax Preparation, Bookkeeping and Payroll

Ten Forty Plus Tax Preparation, Bookkeeping and Payroll

Get a handle on Employee Un-reimbursed Expenses

Tax Tip

Getting the Most Out of Employee Business Expense Deductions 

Individuals can deduct as miscellaneous itemized deductions certain expenses that they incur in the course of their employment.  Generally, qualified business expenses are un-reimbursed expenses that are both ordinary (common and accepted in your industry) and necessary and do not include personal expenses. 

There are two major barriers to deducting employee business expenses.  The most commonly encountered is the 2%-of-income (AGI) deduction floor that applies to most (Tier II) miscellaneous deductions, which besides employee business expenses also includes investment expenses, certain legal expenses, home office and other expenses.  The amount deductible as miscellaneous expenses is the total of those expenses reduced by 2% of the taxpayer’s adjusted gross income for the year.  Depending upon the taxpayer’s income, this reduction can substantially lessen or eliminate the deductible amount.  The second major barrier is the alternative minimum tax (AMT), in which the Tier II miscellaneous expenses are not deductible at all.  Thus, to the extent that the taxpayer is affected by the AMT, there is no benefit derived from these deductions.  There are, however, some planning strategies that can be applied to overcome these barriers, such as the following:

•  Employer Accountable Plan – This is a plan under which your employer reimburses you for your employment-related expenses, but requires you to “adequately account” for the expenses.  Expenses reimbursed by the employer under an “accountable plan” are excluded from income, thus essentially allowing 100% of the expenses to be deducted, while avoiding the 2%-of-income and AMT limitations.  If the employer does not wish to add a reimbursement plan on top of the employee’s existing income, a salary reduction replaced with an accountable plan might be negotiated.

•  Bunch Deductions – With proper planning, employee business expenses for more than one year can be deferred or accelerated into one year, thus producing a larger deduction in that one year to overcome the 2% floor for miscellaneous deductions. 

•  Education Expenses – Although certain employment-related education expenses can be taken as an employee business expense, there are other ways to gain a tax benefit and avoid the 2%-of-AGI and AMT limitations.  These include income-limited education tax credits, and if your employer has an educational assistance plan, your employer can reimburse you up to $5,250 for most education expenses other than those associated with education travel. 

•  Utilize the Section 179 Deduction – Generally, business assets with a useful life of more than one year must be deducted (depreciated) over several years.  However, most business assets, other than real estate, qualify for the Code Section 179 expense deduction that allows the entire cost (up to $25,000 for 2015) to be deducted in one year.  While vehicles used for business are eligible for Section 179 expensing, other limitations cap the deduction at lower amounts.  The depreciation or Section 179 deduction of an employee’s business assets is part of employee business expenses subject to the 2%-of-AGI floor. However, by claiming the Section 179 deduction in the year the asset is purchased rather than deducting a lower depreciation amount over several years, there is a greater chance that the total miscellaneous deductions will be more than the 2%-of-AGI floor, thus allowing part of the expense to be deducted. 

If you would like to explore any of these techniques, please give this office a call.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Worried about no Insurance for Obama Care?

Tax Tip

No Health Insurance? Qualify for Hardship Waiver?

If you didn’t get health insurance coverage this year, you may be subject to a penalty unless you qualify for one of the many general or hardship exemptions. There are in excess of 30 possible exemptions from the penalty and some of the exemptions require you to complete and file an application for approval. If approved for an exemption that requires specific approval, you will be issued an exemption certificate number (ECN) that must be included on your tax return to claim the exemption.

The approval form instructions cover several types of exemptions, will take some time to complete; and, once the application is submitted, the approval/denial process presently takes more than two weeks. Once others realize they need approval for certain hardship exemptions, however, you can expect the approval process to take considerably longer. While application forms are available online, each application must be printed, filled out manually, and then snail-mailed to the government for processing. With tax season just around the corner, you don’t want your refund held up while you are applying for an exemption; so, start the process early.

Not all exemptions require approval, so make sure your reason for an exemption requires advance approval before going to the trouble of completing and submitting the form. If you qualify for an exemption that doesn’t require prior approval, you can claim it on a new IRS form that will need to be included with your 2014 tax return.

If you didn’t have insurance for some period of time during the year (the penalty is computed by the month) and you don’t qualify for one or more of the exemptions, then you will be subject to the penalty for not being insured (the official name for the penalty is the “shared responsibility payment”).

The penalty is generally the larger of a flat dollar amount per individual or a percentage of your income, whichever is greater. For 2014, the full-year penalty, based upon the flat dollar amount, is $95 per adult and $47.50 per child, capped at $285 regardless of family size. The full-year penalty determined by income is 1% of the amount that your household income exceeds your tax filing income threshold.

Example: For 2014, Kevin and Brett are married filing jointly with two minor children. Their household income is $55,000 and their filing threshold is $20,300 (their standard deduction of $12,400 plus the exemption amount of $3,950 each for both of them). So, their flat dollar amount for a full year would be $285, and their percentage of income amount would be $347.00 (($55,000 - $20,300) x 1%). Thus their penalty would be $347.00 for a full year without insurance or $28.92 per month for the family.

For the first year of the shared responsibility payment, 2014, the penalties are low. In 2015, the flat dollar amounts jump to $325 per adult and $162.50 per child (capped at $975), while the percentage of income jumps to 2%. Then, in 2016, the per-adult flat dollar amount goes to $695 and the child amount to $347.50 (maximum $2,085), while the percentage of income increases to 2.5%. If our prior example had taken place in 2016, Kevin’s and Brett’s penalty would be $2,085 (2 x $695 plus 2 x $347.50) since the flat dollar amount is larger than their percentage of income amount.

Kevin and Brett, based upon their income, would qualify for some amount of premium assistance credit that will help them pay the cost of their health insurance if they purchase coverage through a government marketplace. With the severe increase in penalties over the next two years, Kevin and Brett will need to consider whether the cost of health insurance (and the benefits that come with coverage) is a better option than paying the penalty. Open enrollment for 2015 marketplace insurance begins November 15, 2014.

If you have questions about the shared responsibility payment or penalty exemptions you may qualify for, please give this office a call.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com