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TAX TALK: Use Coverdell ESAs to Help Pay for Child’s and Grandchild’s Education

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 21, 2019 9:30:00 AM

There are several ways to save for your child’s or grandchild’s education, including with a Coverdell Education Savings Account (ESA). Although for federal tax purposes there’s no upfront deduction for contributions made to an ESA, the earnings on the contributions grow tax-free. In addition, no tax is due when the funds in the account are distributed, to the extent the amounts withdrawn don’t exceed the child’s qualified education expenses.

Qualified expenses include higher education tuition, fees, books and room, as well as elementary and secondary school expenses.

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Topics: TAX TALK

TAX TALK: Navigating the Unemployment Tax Costs of Your Business

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 14, 2019 9:20:00 AM

As an employer, you must pay federal unemployment (FUTA) tax on amounts up to $7,000 paid to each employee as wages during the calendar year. The rate of tax imposed is 6% but can be reduced by a credit (described below). Most employers end up paying an effective FUTA tax rate of 0.6%. An employer taxed at a 6% rate would pay FUTA tax of $420 for each employee who earned at least $7,000 per year, while an employer taxed at 0.6% pays $42.

Tax Credit

Unlike FICA taxes, only employers — and not employees — are liable for FUTA tax. Most employers pay both federal and a state unemployment tax. Unemployment tax rates for employers vary from state to state. The FUTA tax may be offset by a credit for contributions paid into state unemployment funds, effectively reducing (but not eliminating) the net FUTA tax rate.

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TAX TALK: Maximize the Gift Tax Exclusion Rule

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 7, 2019 9:20:00 AM

As we head toward the gift-giving season, you may be considering giving gifts of cash or securities to your loved ones. Taxpayers can transfer substantial amounts free of gift taxes to their children and others each year through the use of the annual federal gift tax exclusion. The amount is adjusted for inflation annually. For 2019, the exclusion is $15,000.

The exclusion covers gifts that you make to each person each year. Therefore, if you have three children, you can transfer a total of $45,000 to them this year (and next year) free of federal gift taxes. If the only gifts made during the year are excluded in this way, there’s no need to file a federal gift tax return. If annual gifts exceed $15,000, the exclusion covers the first $15,000 and only the excess is taxable. Further, even taxable gifts may result in no gift tax liability thanks to the unified credit (discussed below).

Note: this discussion isn’t relevant to gifts made from one spouse to the other spouse, because these gifts are gift tax-free under separate marital deduction rules.

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Topics: TAX TALK

TAX TALK: Tax Issues with Series EE Savings Bonds

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 30, 2019 10:30:00 AM

You may have Series EE savings bonds that were bought many years ago. Perhaps you have them in a file cabinet or safe deposit box and rarely think about them. You may wonder how the interest you earn on EE bonds is taxed. And if they reach final maturity, you may need to take action to ensure there’s no loss of interest or unanticipated tax consequences.

Interest Deferral

Series EE Bonds dated May 2005 and after earn a fixed rate of interest. Bonds purchased between May 1997 and April 30, 2005, earn a variable market-based rate of return.

Paper Series EE bonds were sold at half their face value. For example, if you own a $50 bond, you paid $25 for it. The bond isn’t worth its face value until it has matured. (The U.S. Treasury Department no longer issues EE bonds in paper form.) Electronic Series EE Bonds are sold at face value and are worth their full value when available for redemption.

The minimum term of ownership is one year, but a penalty is imposed if the bond is redeemed in the first five years. The bonds earn interest for 30 years.

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Topics: TAX TALK

TAX TALK: Some Relief from College Costs on Your Tax Return

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 23, 2019 9:20:00 AM

We all know the cost of college is expensive. The latest figures from the College Board show that the average annual cost of tuition and fees was $10,230 for in-state students at public four-year universities — and $35,830 for students at private not-for-profit four-year institutions. These amounts don’t include room and board, books, supplies, transportation and other expenses that a student may incur.

Two Tax Credits

Fortunately, the federal government offers two sizable tax credits for higher education costs that you may be able to claim:

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Topics: TAX TALK

TAX TALK: 2019 Q4 Tax Deadlines for Businesses and Other Employers

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 16, 2019 9:20:00 AM

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2019. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

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TAX TALK: Next Estimated Tax Deadline is 9.16: Do You Have to Make a Payment?

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 9, 2019 9:20:00 AM

If you’re self-employed and don’t have withholding from paychecks, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The third 2019 estimated tax payment deadline for individuals is Monday, September 16. Even if you do have some withholding from paychecks or payments you receive, you may still have to make estimated payments if you receive other types of income such as Social Security, prizes, rent, interest, and dividends.

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Topics: TAX TALK

TAX TALK: Expenses That Teachers Can and Can’t Deduct

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 3, 2019 9:20:00 AM

As teachers head back for a new school year, they often pay for various expenses for which they don’t receive reimbursement. Fortunately, they may be able to deduct them on their tax returns. However, there are limits on this special deduction, and some expenses can’t be written off.

For 2019, qualifying educators can deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction. This is an “above-the-line” deduction, which means you don’t have to itemize your deductions in order to claim it.

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Topics: TAX TALK

TAX TALK: Taking Distributions from a Traditional IRA

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 26, 2019 9:20:00 AM

If you’ve worked hard to accumulate a large nest egg in your traditional IRA (including a SEP-IRA), it is critical to carefully plan for withdrawals from these retirement-savings vehicles. Knowing the fine points of the IRA distribution rules can make a significant difference in how much you and your family will get to keep after taxes. Here are three IRA areas to understand:

Taking Early Distributions. If you need to take money out of your traditional IRA before age 59½, any distribution to you will be generally taxable (unless nondeductible contributions were made, in which case part of each payout will be tax-free). In addition, distributions before age 59½ may be subject to a 10% penalty tax.

However, there are several ways that the penalty tax (but not the regular income tax) can be avoided. These exceptions include paying for unreimbursed medical expenses, paying for qualified educational expenses and buying a first home (up to $10,000).

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Topics: TAX TALK

TAX TALK: Tax implications of Gambling Winnings

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 19, 2019 9:20:00 AM

If you’re lucky enough to be a winner at gambling or the lottery, congratulations! After you celebrate, be ready to deal with the tax consequences of your good fortune.

Winnings are Taxable Income

Whether you win at the casino, a bingo hall, or elsewhere, you must report 100% of your winnings as taxable income. They’re reported on the “Other income” line on Schedule 1 of your 1040 tax return. To measure your winnings on a particular wager, use the net gain. For example, if a $30 bet at the race track turns into a $110 win, you’ve won $80, not $110.

You must separately keep track of losses. They’re deductible, but only as itemized deductions. Therefore, if you don’t itemize and take the standard deduction, you can’t deduct gambling losses. In addition, gambling losses are only deductible up to the amount of gambling winnings. So you can use losses to “wipe out” gambling income but you can’t show a gambling tax loss.

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Topics: TAX TALK

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