IRS does not call you! Phone Calls from IRS is a new Scam

The new scam is that you get a very official sounding phone call from the Internal Revenue Service or the Untied State Treasury of America.  Please do not talk or give any information to the person on the other side of the phone. The best thing is to hang up or write the number down and report it to the IRS. Usually these phone calls are about your refund, bank account error, taxes due, or error in your return.

IRS does not call anyone, if there is an issue with your taxes, you will be receiving a letter from the Treasury or your State. Even then, you need to examine the letter and make sure it is a legitimate correspondence.

 

How new tax laws can affect your education plans

When the talk of tax reform first began last year, there was a lot of theory about the implications for educational loans and debt. Because students seeking loans, and those already paying on student loans worried that the changes would mean money out of their pockets.

Here is what is left intact:

  • American Opportunities Credit (AOC), a credit of up to $2,500 per eligible student.
  • Lifelong Learner credit, a credit of up to $2,000 for qualified education expenses.
  • Student loan interest deduction.  The student loan interest deduction of up to $2,500 stays intact. This benefit still gets phased out the more you earn. E.g. single tax filers earning more than $80,000 and couples earning over $165,000 no longer qualify for this deduction.
  • Employer tuition assisted remains nontaxable. Employers can contribute up to $5,250 a year to your qualifying continuing education.

Changes related to the Section 529 accounts:

Use of Section 529 accounts is expanded. Per US Security and Exchange Commission, A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

Contributions to a 529 plan aren’t deductible, but amounts deposited in the plan can grow tax free until distributed

Starting in 2018

  • “Qualifying distributions” will include tuition at public, private or religious schools.
  • In addition to college tuition, section 529 also applies to elementary or secondary schools.
  • Section 529 will be limited to $10,000 per student during any taxable year

The new legislation only affects the federal tax treatment.  Each state is to review the impact to determine if they will adopt a similar approach at a state income tax level.

There is a $2,000 annual contribution limit to Coverdell Education Savings Accounts (Contributions to a Coverdell ESA aren’t deductible, but amounts deposited in the account can grow tax free until distributed).  The ability to contribute is phased out when income exceeds the phaseout limit.

Note: For people who are just starting to get educational funding in 2018, it will be important to understand the different types of student loans available and what the tax consequences will be when 2018 taxes get filed.  Obtaining all of the information you can and planning accordingly will give you the best tool to minimize the tax impacts and alleviate any unintentional impact to your credit score. To leave yourself in the best shape in terms of both taxes and credit, plan for your tax liability and use different strategies to repay your student loans.

4 Simple reasons to participate in your company’s 401K

1.  If your company matches a percentage to your 401K contribution, it is actually just like you got a raise. For example, if your company matches 3% of your salary to your  401K contribution, and lets say you make $40,000 a year, you are going to get an extra $1,200.

2.  Your contribution to your 401K plan is tax deferred. For example, if you contribute $2000 to your 401K, and your wages are at $40,000, you actually will only pay taxes on $38,000. You will save on paying the taxes on the $2,000 for now.

3.  Your contribution and the extra that your company matches grows in your plan and you will have an attractive amount of savings without really cramping your budget.

4.  You can borrow from your 401K plan when you need to, such as, for a down payment to buy a house.

Is my Scholarship taxable?

Scholarships  received by a student toward a degreed education is tax free for qualified expenses such as tuition, fees, books, supplies and equipment. The room and board and travelling expenses are taxable and should be included in the 1040 tax return.  The scholarships received for a non-degreed education is all taxable. For more information please refer to IRS publication 970.

I don’t have money to pay my taxes. Should I file my business tax return?

Yes, you are better off to file your business tax return on time even though you can’t pay your taxes due. You pay less in penalties if you file your taxes on time. The penalty of late filing will be added to the penalty of late payment of taxes and you end up paying more out of your pocket.

The pass-through companies such as LLC’s, S Corporations are penalized for late filing by IRS and if in California by the State.

The extension dead-line for the LLC and S Corporations is September 15th.

The extension dead-line for Individual tax return is October 15th.

 

Send your kids to day camp and save on taxes

The IRS allows the cost of day camp and babysitters for your kids to be deducted from your taxes. This saving is in the form of a tax credit and it allows you to use 35% of all eligible child care expenses up to  $6000 for two or more children. This credit is 35% of child care expenses up to $3000 for one child. Just save all your receipts and take them to your tax preparation service.

Remember your child has to be 13 or younger. Overnight camps expenses are not eligible for this credit. The cost of babysitters at home or a home facility is eligible too.

Enjoy the summer and let your kids enjoy themselves too.