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Plan Ahead for Tommy or Sally’s College Fund: Save today in a 529 Plan

Are you planning to give your children a leg up in the real world? Not sure you want your kids at home until they are 30? In order to do so, you need to start planning their college funds as early as possible; as soon as they are born is not too soon.

Did you know?

Tuition at a 2 year public college is $3,347; room and board is $7,705 per year!

For in-state 4 year colleges, tuition is $9,139 and room and board is $9,804 per year. Having $80,000 available for your child’s education is only possible if you start saving today. These are not even Ivy League schools.

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The 529 Plan

With only 3% of Americans saving for college through this plan, you would think that it is a terrible plan. Unfortunately, that is not true. The 529 College Savings Plan was designed for families in order to help save for college. Its earnings are entirely tax free, as long as the money is used for approved educational expenses. These expenses include any nationally approved college, tuition, books and even room and board living expenses while at college. The best part is, contributions can be made to the plan by anyone, not just parents.

Although the plans are state administered, it is a national savings option for college. Some states even tack on their own tax savings onto their 529 plans doubling up the savings in taxes that you could get. There are two types of plans, the Savings Plan and the Prepaid Plan. Most families will most likely use the Savings Plan because it works much like a 401k or IRA so you can invest the contributions as you see fit into stocks, bonds or mutual funds and you can choose any approved college to spend it on.

A Prepaid Plan allows you to prepay all or part of the costs of an in-state public college, but can be converted for private or out of state colleges. If your family has a long tradition at one school this may be an option for you.

Choosing the Right Plan

Of course there are words or wisdom to live by when it comes to these 529 Plans, as they are confusing, daunting and depending on the plan you choose could have a number of fees and terms you may not understand.

Surprisingly, you do not have to choose the plan in your own state of residency, you could choose any state plan anywhere in the US. However, be careful you are not giving up state tax deductions by going out of state. Arizona, Kansas Missouri, Maine and Pennsylvania are the only states that allow tax deductions for plans arranged from anywhere in the US. So if you do not live in one of these states and set up an out of state plan, you will not get your state’s tax deductions.

One of the best ways to ensure you are getting the right plan, the terms are explained properly and you are not inundated with fees is to talk to your tax planner or financial planner for quality advice.

Self Employed? Claim Earnings, Get Rewards!

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if you are self-employed you may be considering “shaving some off the top,” otherwise known as not fully reporting your income. Although you may think this practice is good for you, as the short term gain is paying less taxes, there are a few reasons why you should not do it; besides being illegal of course. Find out why it’s important to file a full claim.

The Digital Age

At a time when contract employment is skyrocketing in popularity, there are a ton of freelance workers, self-employed contractors and one-person small businesses that exist almost solely in the digital space. You hire or get hired online, submit work online and get paid online through PayPal, Skrill or another online payment platform. However, these methods of payment or work do not exempt you from paying taxes. It is still illegal not to report this income.

Also, these online payment platforms are not a form of credit cards, they are considered by the government as a form of a bank. As such, they are required to submit information on accounts for tax purposes. If you have an online account, it is very easy to track and trace the income from these sources. Eventually, the IRS will catch up to you.

It is technically even easier for a trail to lead back to you in the digital age. If you are earning over $600 from a single source, such as form one client, that client should be providing you with a 1099 or W2. These forms simply state the revenue that was paid to you for services rendered or items bought or sold. If you do not receive one, your own records and claiming the income should suffice, but having their contact details and history of the service or product provided should be kept.

How Claiming Helps

If you do claim 100% of your earnings there are a few good things that can help you. If you report less earnings then when you apply for any type of loan for a car, mortgage or personal loan you are more likely to be denied because your ‘income’ is not reported and therefore not verifiable through these loan applications.

Also, claiming the income in a family situation where you have children offers a benefit of even getting a refund back. In order to properly claim your income, you should also claim all expenses related to the business. If you work from home, you can claim a portion of the home expenses including interest paid on the mortgage, repairs and maintenance and even utilities of the home. Just be sure you actually have a designated “home office” space and not the kitchen table or these expenses could be denied. Imagine all the possible expenses that can be applied against your income including health insurance costs, retirement saving plans, office supplies and even child care.

You may be surprised by how little tax you have to pay, especially for home based businesses or new businesses after you claim your expenses.

Driving Truck and Getting Your 100% Per Diem & Other Tax Deductions

truck-driversIf you are a truck driver, especially if you are an owner-operator, you need to be sure to claim all your expenses come tax time. These deductions can have a huge impact on lowering your taxable income and reducing your tax liability. If you want to pay less tax, then you should be claiming your per diem and the other deductions listed below.

Your Per Diem

If you drive long-haul trips or are away from home overnight for meals there is a great chance you can claim meal per diems. In 2015 the rate started out at $59 a day and increased October 1st to $63 per day, of which you can claim 80% of. In essence you can claim this deduction every day you are away from home and driving truck. If you work 220 days a year (at an average) you could claim over $10,000 in meal expenses while you were away. This generally cannot be claimed by company drivers that are reimbursed for meals.

On the Go

In a digital age, the government recognizes the need for drivers to be and remain connected including the usage of mobile or cell phones, laptop computers with internet connectivity and traditional CB radios. These can be big expenses for drivers, but most of it can be deducted on your taxes as an expense deduction. Any physical item you buy, such as a phone, laptop or CB radio is 100% deductible as a business expense. However, because you use these items for personal use, especially the phone and laptop, you can only claim 50% of the monthly connection, data or minute charges as a deduction.

Professional Development

Did you know you can deduct any subscriptions or trucking-related publications that you purchase or subscribe to on an annual basis? This information is considered to be relevant because they often include new regulations and information relevant to the industry. As such their full cost is deductible. Also, if you are a part of a union or trucking association, the dues for membership are also deductible. Of course your licensing fees to be a commercial driver are also a tax write off.

Business Expenses

As an owner-operator or business owner, you can claim a lot of the same expenses as a local business. This includes an office space, office supplies, maintenance of your truck, personal or business necessities such as toiletries, cleaning supplies, tools for truck maintenance and repair, industry clothing and any fees while on the road such as tolls, parking, truck weight fees and much more.

If you are not claiming all these expenses you may be paying more in tax than you should be. Also, these types of expense lists are considered an itemized expense list as opposed to a Standardized expense list. If you itemize your expenses you can likely claim more in deductions, but you also need to keep all your receipts and have them organized. Let a local tax preparation specialist help you get more of your money back.

HSA – Why You Should Open One Now!

hsaA Health Savings Account (HSA) is a relatively new savings vehicle and for that reason alone too many people do not have them. Introduced in 2008 as a way to help defray the costs of rising health care expenses they are not like Flexible Spending Accounts (FSAs) in a number of ways. If you already have an FSA with your employer you should also open an HSA to reap the benefits of both of these vehicles. Make sure to have your accountant or tax preparation service aware of your HSA for the right tax deductions.

HSA Basics

Unlike an FSA, anyone can open an HSA through your banking institution, wealth management company or often with your employer. Essentially these organizations simply become stewards of the account, but with no real oversight on how you use them.

The Health Savings Account is a pre-tax savings account that allows you to contribute money to the account in order to pay for medical expenses for yourself or for those in your immediate family. Pre-tax, means that any contributions that are made to the account are non-taxable come tax time. In other words the tax service you use will be able to deduct these contributions from your overall income in that year lowering your taxable income.

When you make withdrawals, they are also tax-free, as long as the expense qualifies as a medical expense. These expenses are generally more inclusive than many health benefits and include items like laser-eye surgery, guide dogs, special education, a weight loss program, fertility enhancement, lab fees and much more. To qualify for a HSA you simply need to be in a high-deductible health care plan and not in an HMO among other qualifications.

Save in Good Times

This account is a great way to lower your overall income tax bracket during good times. Contribution limits started in 2008 at $2,900 and $5,800 for singles and families and have increased to $3,350 and $6,750 in 2016 with an annual catch-up allowance of $1,000 for those 55 and older if you did not maximize your account in the previous year. If you are financially secure it is a great way to build up another tax-free savings account, as the withdrawal policies for HSAs are rather liberal.

Rainy Day Withdrawals

A great way to maximize the savings in the HSA vehicles is to contribute your annual maximum, while at the same time paying for any medical expenses “out of pocket” if you are financially able. If you come upon a non-medical emergency, you can withdraw funds from the HSA at any time for any reason. However, if you have not claimed previous expenses, as long as you can provide proof, you can claim expenses at any time in the future. This allows you to continue to grow this account and offset any non-medical withdrawals in the future with pent up expenses that have gone unclaimed.

Of course, you can always withdraw from the fund to pay for medical expenses, keeping receipts for your tax preparation service to properly implement your tax savings come tax time.

Tax Preparation Implications

This account has specific tax benefits that your tax service can educate you on. From lowering your overall income to drop tax brackets to being able to “double dip” allowing you to store funds without being taxed and withdraw them tax-free for medical expenses.

Just be sure your tax preparation service is aware of your HSA account and you provide the necessary receipts to them and keep them in case you are audited.

What You Need To Know About The Affordable Care Act

The Affordable Care Act, or Obamacare, is a law that aims to reform America’s healthcare. The law primarily deals with:

  • Improving the affordability and quality of health insurance
  • Changing how we deal with chronic diseases
  • Reforming healthcare delivery
  • Strengthening the country’s primary care systems

Studies show that the total number of uninsured Americans has shrunk since Obamacare came into effect. In fact, a Gallup health insurance pollfound that there has been a 3.7 percent point decline in the number of adults who are uninsured since the last quarter of 2013.

However, skeptics say that this is nowhere near the reduction in the number of uninsured that we were promised. Other surveys have found that an overwhelming number of people didn’t sign up for Obamacare because they simply didn’t understand it. Looking at the Act’s reforms, premium tax credits, and cost-sharing reductions, people were confused about what Obamacare could do for them. And they still are. An income tax service provider can explain the ACA in detail, but it doesn’t hurt to read up on it anyway.

Here, we’ll run you through a brief summary of the reforms put into place by Obamacare:

What Are Tax Credits?

The Affordable Care Act ensures that low-cost health insurance is easily accessible to every American, by offering them government-sponsored health insurance plans at discount. These discounted plans are known as tax credits.

Those who qualify for tax credits have income which ranges from one to four times the Federal Poverty Level. If you do qualify, you’re given the option to either declare the credits on your yearly tax return or reduce your monthly insurance bill by applying the credits to your premiums.

The Plans

Everyone doesn’t get the same health insurance plan under Obamacare. Each plan falls into a tier that corresponds to a specific metal – bronze, silver, gold and platinum. Bronze is the cheapest, but these plans will only cover 40% of your costs. Platinum is the most expensive, but 90% of your costs will be covered.

Here’s a little tip - if your income is between 1 and 2.5 times the Federal Poverty Limit, choose a Silver plan that will cover 70% of your costs. You will automatically be upgraded to a Gold plan that covers 80%, free of any extra charge.

Changing the Game for Insurance Companies

You won’t qualify for credits if your income isn’t within one to four times the FPL range, but that doesn’t mean that you don’t stand to gain anything from the Affordable Care Act. Under Obamacare, insurance companies have to play by different rules. They are no longer allowed to turn you away, drop you, or add a lot of extra zeros to the cost of your coverage because you have a preexisting medical condition.

Obamacare Penalties and Why You Should Care About Them

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Some would say that the Act is designed to help people find the kind of health insurance plan that is perfect for them, and that it protects them from being swindled by insurance companies. Others argue that the Act strong-arms people into signing up. Now that you have the facts, you can make up your own mind.