tax tips

6 FAQs About 529 College Savings Plans

College is a large expense and one worth planning for, especially if you want your future college graduate to start their lives with minimal debt. One common way to prepare for such an expense is to open a 529 college savings plan.

Photo by Ruijia Wang on Unsplash

Photo by Ruijia Wang on Unsplash

What is a 529 plan?

College savings 529 plans are state-sponsored savings accounts that offer both tax and financial aid benefits.

What states run a 529 program?  

Almost every state has a 529 program, each with different perks and benefits. You can pick based on perks and you don’t need to live in the state you opened the account in.

You can look at 529 plan options using this tool from SavingforCollege.com.

What are the two types of college 529 plans?

There are two types of 529 plans, they are:

  • College savings plans – This plan is similar to a Roth 401k or Roth IRA by allowing you to contribute after-tax income in the form of mutual funds and other types of investments. There are a number of investment options to choose from and the 529 account will go up and down and value according to those investment choices. The money is this account is available for tuition, books, and often housing.

  • College prepaid tuition-  This plan can be used to pre-pay all or part of the costs of an in-state public college education. Sometimes, they can be converted for use at private or out-of-state colleges.

What are the perks of using a 529 savings plan?

Each state provides slightly different incentives for its 529 programs. But some of the overall benefits include:

  • Large income tax breaks (for federal and often state taxes)

  • The donor stays in control of the account until its use

  • They’re low maintenance

When can you start them?

You can start one of these savings plans at any time. Most 529 programs are “set it and forget it” meaning the investments come straight out of your paycheck or bank account.

Where can I learn more about college 529 plans?

There are a lot of online resources for comparing and ranking different 529 programs. You can reference one of these, or reach out to your friendly neighborhood tax professionals. We can help you select the best option for you.

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6 Tax Deductions That Went Extinct in 2018

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The Tax Cuts and Jobs Act of 2017 was called one of the largest tax overhauls in 30 years. It went into effect at the beginning of 2018, which means taxpayers are starting to feel the impact now. Some households will benefit from it, others will not. Here are some deductions that have been eliminated or reduced.

Moving Expenses
Unless you or a spouse is in the military and is currently on active duty, you won’t be able to take any deductions for moving. In the past, those who moved for a job and paid the moving cost could deduct most of their expenses.

Personal Deductions
Deductions for personal exemptions, which can be worth $4,050 for each exemption, were eliminated and replaced with a larger standard deduction and an expanded child tax credit.

Paying Alimony
If you’re paying alimony on a divorce finalized before December 31, 2019, then you can deduct those payments one last time.

Unreimbursed Job Expenses
This fell into the category of miscellaneous itemized deductions, an area that has been greatly reduced by the latest tax laws. It means that anything an employee pays for while on the job and doesn’t get reimbursed for, is not deductible.

State and Local Taxes
You used to be able to fully deduct any amount of state or local taxes. Now that cap is set at $10,000 meaning those with high state income and property taxes will get much less back.

Tax Preparation Fees
Tax preparation fee deductions were eliminated as part of the miscellaneous fees. This is will occur from 2018-2025. That means you cannot deduct payments to accountant, tax prep firms, or tax preparation software.

Ensuring Your Year-End Donations Are Tax-Deductible

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Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Many people make donations at the end of the year. To be deductible on your 2017 return, a charitable donation must be made by December 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean?

Is it the date you write a check or charge an online gift to your credit card? Or is it the date the charity actually receives the funds? In practice, the delivery date depends in part on what you donate and how you donate it. Here are a few common examples:

Checks. The date you mail it.

Credit cards. The date you make the charge.

Pay-by-phone accounts. The date the financial institution pays the amount.

Stock certificates. The date you mail the properly endorsed stock certificate to the charity.

To be deductible, a donation must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions. The IRS’s online search tool, “Exempt Organizations (EO) Select Check,” can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access it at https://www.irs.gov/charities-non-profits/exempt-organizations-select-check. Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2017 tax bill.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.