  PO Box 2214 Oregon City OR 97045 503-656-0699 |
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Date last modified:
10/29/07 |
July 2007 Newsletter It’s as Easy as 5-2-9! Are tuition payments in your future? If you are a parent or grandparent of a future college student, you may want to become familiar with 529 Plans. A Qualified Tuition Program or 529 Plan is a tax-favored savings vehicle for qualified higher education expenses. Annual contributions can greatly exceed the annual limit of $2,000 placed on Coverdell Education Savings Plans. Some states offer a tax incentive for contributions made to certain 529 Plans. Oregon allows up to a $2,000 taxable income adjustment for contributions made to one of the state-managed 529 Plans. There is no federal tax benefit for putting money in a 529 account. An account is set up for the benefit of the future college student. The beneficiary can be your child, grandchild, niece, nephew or other family member – even yourself! Contributions to fund the account can be made by anyone, not just the account holder. In general, for financial aid purposes, the account is considered an asset of the owner not the beneficiary. More than one account can be opened on behalf of a beneficiary and contributions made to all the accounts until the total balance reaches $250,000. The beneficiary may attend any college, university, vocational school or other post-secondary institution eligible to participate in a student aid program administered by the Department of Education. Funds from the account are withdrawn tax-free to pay for qualified expenses, including tuition, fees, books, supplies and equipment required for participation in the educational program. Room and board are qualified expenses as long as the student attends school at least half-time. If the account beneficiary decides not to attend college, you can switch the account to a new beneficiary or just let the account grow, as there are no age restrictions on 529 plans. You may also take a “non-qualified” distribution which will be subject to federal and state income taxes and a 10% federal penalty. Contact Bill for more information about setting up and using a 529 Plan.
Kiddie Tax While children often have their “taxing” moments, there is a real federal tax called the “Kiddie Tax” for short. Earnings from investments that are above a certain level are taxed at the parents’ tax rate. Recently, significant changes were signed into law that may affect you and your family. The old law applied to children under 14 at the end of the year. Current law covers children under 18 at the end of the year with investment income over $1,700 (“unearned” income). Amounts over $1,700 are taxed at the parents’ rate. Beginning with the 2008 tax year, the kiddie tax provisions will apply to children under 19 and students between 19 and 24 (full-time students for at least five months of the year) and who are claimed as dependents by their parents. The only exceptions are for students over 18 with earned income that exceeds half of the student’s support and those who are married and filing their own tax return. Traditionally, many families have shifted assets and the resulting income to children as a means of saving for education. This strategy may no longer be as certain, tax-wise. The $1,700 threshold includes interest, dividends and capital gains from stock sales. Contact Bill for more information about how these changes may impact you.
ÏÏÏÏÏ 3rd Quarter tax estimates are due September 17. ÏÏÏÏÏ
Debt Relief May Be Taxable Income If you receive debt forgiveness from a creditor, you may have to claim it as income on your taxes. There are two general exceptions – when debt relief is granted as part of bankruptcy and when the taxpayer is insolvent at the time debt relief is granted. Debt relief is reported to the IRS on forms 1099-C, Cancellation of Debt and 1099-A, Acquisition or Abandonment of Secured Property. If you receive one of these forms from a creditor, include them with your tax materials. To prove insolvency, an explanation should be attached to the tax return demonstrating the taxpayers “assets” (what is owned, including home equity) were exceeded by total liabilities (what is owed) on the date debt relief was granted.
ÏÏÏÏÏ Personal Tax Returns on Extension are due in our office by September 1 in order to be completed and in to the IRS by October 15. ÏÏÏÏÏ
New Option for Business Owners If you and your spouse are both actively involved in your own, unincorporated business, the IRS will now let each spouse file a Schedule C, splitting the expenses and income. Doing so may benefit each spouse for the purpose of earning Social Security wage credits. This option is available to legally married couples who are eligible to file a joint return.
Tax Fraud via Email The IRS NEVER communicates with taxpayers via email. If you receive an email claiming to be from the Internal Revenue Service, be suspicious no matter how authentic it may look or sound. There are reports of fraudulent emails requesting personal and financial information that is then used to steal the taxpayer’s identity.
Limited Time Only…Zero Capital Gains Tax! In 2008, some capital gains will be eligible for a one-year only 0% tax rate. Taxpayers in the 10% and 15% tax brackets won’t be taxed on gains from the sale of certain assets held for more than one year. However, the asset sale may raise your taxable income into a higher tax bracket. If that is the case, part of the gain will be taxed. While it will be difficult to predict how you will be impacted, 2008 is the year to consider selling stocks and other assets you have held for more than one year. Business assets will not be eligible for this special treatment.
ÏÏÏÏÏ The office will be closed August 3, August 19-26 and September 9-16. ÏÏÏÏÏ
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