Finance Tips

Looking for a tax-advantaged college savings plan that has no age restrictions, no income phaseout limits, no residency requirements — and one you can use to pay for more than just tuition?

Consider the 529 savings plan, an increasingly popular way to save for higher-education expenses, which have more than tripled over the past two decades — with annual costs of more than $30,000 per year for the average private four-year college.1 Named after the section of the tax code that authorized them, 529 plans (also known as qualified state tuition programs) are now offered in almost every state.

Most people have heard about the original form of 529, the state-operated prepaid tuition plan, which allows you to purchase units of future tuition at today’s rates, with the plan assuming the responsibility of investing the funds to keep pace with inflation. It’s practically guaranteed that the cost of an equal number of units of education in the sponsoring state will be covered, regardless of investment performance or the rate of tuition increase. Of course, each state plan has a different mix of rules and restrictions. Prepaid tuition programs typically will pay future college tuition at any of the sponsoring state’s eligible colleges and universities (and some will pay an equal amount to private and out-of-state institutions). continue reading…

Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available to help lower their tax liability. In fact, the head of the IRS once said that millions of taxpayers overpay their taxes every year because they overlook one of the many key tax deductions that are available to them.

1. One of the most overlooked deductions is state and local sales taxes.
2. Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, moving expenses to take a first job, the child care tax credit, new points on home refinancing, health insurance premiums, home mortgage interest, tax-preparation services, and contributions to a traditional IRA.

Of course, some tax deductions disappear as adjusted gross income increases. And some deductions are subject to sunset provisions, which your tax professional can help you navigate.

Another key deduction is unreimbursed medical and dental expenses. For medical and dental bills paid during the past year that weren’t covered by insurance, a household may be able to deduct the amount that is greater than 7.5% of its adjusted gross income when calculating income taxes. continue reading…

Is an individual taxpayer, you are subject to two tax systems, the regular income tax and the alternative minimum tax (AMT). You are liable for the larger, and only the larger, of the two taxes. The original purpose of the AMT was to ensure that taxpayers who were allowed special favorable treatment on certain tax items pay at least a minimum amount of tax on their economic income. As personal incomes tend to rise each year, more taxpayers have become subject to the AMT. This is primarily due to not indexing the AMT exemption for inflation (which reduces your exposure to the AMT) while your regular tax deductions and exemptions are indexed (increased) for inflation.

The AMT tax computation starts with your regular taxable income that is then increased for certain tax benefits (in the regular tax liability computation) called preferences and adjustments. These include certain itemized deductions, the standard deduction, personal exemptions, certain tax-exempt interest, and income related to exercising certain stock options. You then reduce the amount by the AMT exemption, which for some high-income taxpayers is phased-out. The AMT is then computed and, as previously stated, you pay the larger of the regular tax or the AMT. continue reading…