Do your homework on back-to-school tax breaks
Education tax planning can optimize the available breaks to save and pay for school expenses. Here are some tips:
Saving for education
- Section 529 plans include prepaid tuition programs and college savings accounts. Prepaid tuition programs let you buy future tuition credits at today’s rates, while college savings accounts let you set aside funds in an investment account. You don’t get a tax deduction, but the money can be used tax-free on qualified college expenses.
- Coverdell education savings accounts have some of the same characteristics as Section 529 plans – and a few important differences. Nondeductible annual contributions of $2,000 can be made not only for qualified college costs, but also for many K-12 expenses. Unlike 529 plans, phase-out rules prevent contributions when your income exceeds certain levels.
Paying for education
- If you’re currently paying college expenses, your tax planning should take into account the various deductions and credits available. These include the American Opportunity Credit, the Lifetime Learning Credit, and the Student Loan Interest Deduction.
If you have education expenses to pay now or in the future, planning will help you to take advantage of the available tax breaks. Contact Moskowitz LLP for details and assistance.
Health care law survives Supreme Court challenge
On June 25 2015, the U.S. Supreme Court issued its ruling on the controversial King v. Burwell case.
The main issue in the case was whether federal subsidies could be offered to people who purchased health insurance through the federal health insurance marketplace rather than through a state-run exchange. Under a literal reading of the law, subsidies are allowed through exchanges “established by the state.” It was argued that the wording of the Affordable Care Act (ACA) prohibits subsidies from being granted in states that did not set up their own insurance exchange, but instead defaulted to the federal health insurance marketplace. More than half of the states use the federal exchange.
Had the Court’s decision gone the other way, an estimated six million people would have lost the subsidies that help them pay for their health insurance. However, the Supreme Court decided by a 6-3 margin that this distinction between state and federal exchanges was not the intent of Congress and ruled to preserve the right for subsidies to be offered in all states. The majority opinion was written by Chief Justice Roberts.
I.R.S. data breach affects more than 300,000 people
On Monday, August 17, 2015, the Internal Revenue Service revised its estimates of the number of individual tax returns that were obtained and viewed by hackers last May. Personal information obtained was used to obtain fraudulent tax refunds. The IRS also reported that it will be sending out notices to individuals that they believe were affected by the breach or believes were probably viewed by the hackers. Remember anyone can be the victim of identity theft. We encourage you to take steps to protect yourself. The IRS has provided a Taxpayer Guide to Identity Theft which has information regarding tax related identity theft as well as links to I.D. theft resources.
IRS publishes 2016 HSA contribution limits
The IRS recently announced inflation-adjusted contribution limits for health savings accounts (HSAs) for 2016. HSAs are a combination of a high-deductible health insurance plan and a savings account in which you set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. The 2016 HSA contribution limit for individuals is $3,350; the limit for family coverage is $6,750. You can make a catch-up contribution of an additional $1,000 when you’re 55 or older.
Businesses say taxes are a hassle
In a survey of small businesses conducted by the National Small Business Association, 59% of respondents said taxes were more of an administrative burden than a financial one. Most businesses put payroll taxes at the top of the list of taxes with the greatest administrative burden. Payroll taxes also outranked other taxes, such as income, property, and sales taxes, as the top financial burden to businesses.