Saving For College

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Baldwin NY Tax Preparation service Pat Tax Inc. and Patrick White, Enrolled Agent . Please feel free to contact us with any questions or concerns.

Custodial Accounts (UTMA/UGMA)
Assets in a custodial account belong to the minor. A custodian, usually an adult relative, controls the assets until the minor reaches the age set by state law (21 in most states).
Assets in a custodial account can be used to pay for education expenses for the minor.

Savings Bond Interest Exclusion
Exclusion Rules

Interest from qualified savings bonds redeemed by the taxpayer can be excluded from income if:

The taxpayer paid qualified education expenses during the year for the taxpayer, spouse, or a dependent claimed on the taxpayer’s return.
Filing status is not Married Filing Separate.
If proceeds from the redemption (interest and principal) are more than adjusted qualified education expenses, only a percentage of the interest is excludable.
Example: Marty redeemed qualified bonds for $10,000, including accrued interest of $5,500. He paid $8,000 of qualified education expenses during the year. His excludable interest is:

$ 5,500 Interest X $8,000 Qualified Expenses/$10,000 Redemption Proceeds=$4,400 Tax Free Interest

Income Limit
The exclusion is limited by adjusted gross income. Check with your tax preparer for income limitations.

Read 2016 Saving for College Here

Qualified Savings Bonds

Series EE bonds issued after 1989 and Series I bonds.
Issued to a person who was age 24 before the bond’s issue date. The issue date is the first day of the month in which the bond was purchased (for example, a bond purchased on May 25 has a May 1 issue date). The issue date is printed on the front of the bond.
Issued in the name of the taxpayer and/or spouse. There can be no other co-owners, including the taxpayer’s child. The bond can have a pay‑on-death (POD) beneficiary, including a child.

Qualified Education Expenses

Tuition and fees required for enrollment or attendance at an eligible educational institution. Qualified expenses do not include courses involving sports, games, or hobbies, unless part of the student’s degree program.
Contributions to a qualified tuition program.
Contributions to a Coverdell education savings account.

Qualified Tuition Plans (529 Plans) & Educational Savings Accounts (ESAs)

QTP and ESA Tax Benefits
Contributions to a QTP or ESA are not deductible. Earnings accumulate tax free. Distributions are not taxable if less than the beneficiary’s adjusted qualified education
expenses in the year of distribution. Contributors can contribute to both a QTP and an ESA in the same year for the same designated beneficiary.

Read 2016 Saving for College Here

Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

“Empowering clients through education, a stress free transaction and an excellent service experience.”

College Financial Aid Planning

Individuals who want to attend college but cannot afford the costs outright must find alternative funding through various types of financial aid. Many factors affect eligibility for federal financial aid; therefore, all students should apply for financial aid every year even if they think they do not otherwise qualify.

Read College Financial Aid Planning Here

FAFSA
The Free Application for Federal Student Aid (FAFSA) is the first step in the financial aid process. Students use the FAFSA to apply for federal student aid, such as grants, loans, and work-study. The FAFSA must be submitted for each year the student wants financial aid.

Income Tax Return
If the student (or parents) needs to file a 2015 income tax return with the IRS, it is recommended that it is completed before filling out the FAFSA.

Expected Family Contribution
The questions on the FAFSA are required to calculate the student’s Expected Family Contribution (EFC). The EFC measures the student’s family’s financial strength and is used to determine the student’s eligibility for federal student aid. The EFC is split between an expected amount contributed from the student (usually more) and an expected amount
being contributed from the parents.

Read College Financial Aid Planning Here

Student Aid Report
A student’s EFC will be listed on their Student Aid Report (SAR). The SAR summarizes the information submitted on the student’s FAFSA.

Financial Need
Financial need is the difference between the EFC and the college’s cost of attendance (which can include living expenses), as determined by the college. The college will use the student’s EFC to prepare a financial aid package to help meet financial need.

Read College Financial Aid Planning Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Financial Planning Guide

Personal Financial Planning

Budgeting-Steps to manage income and expenses include the following.

Identify monthly outflows as living expenses, savings, and discretionary.
Eliminate unnecessary expenses from the discretionary category. If further cuts need to be made, reduce living expenses by obtaining a less expensive auto or home. Reduce savings as a last resort. Track income and expenses monthly and review every six months.
Establish an emergency fund equal to six months of income saved.
Save on private mortgage insurance by putting at least 20% down on a home mortgage

Read Financial Planning Guide Here

Education Funding-Several tax advantages are available to help save for education expenses.

Savings bond interest may be tax free if used for qualified education expenses.
Coverdell education savings accounts (ESAs) provide tax-deferred growth and tax-free distributions for qualified education expenses.
Qualified Tuition Programs (529 plans) provide tax free distributions for qualified tuition expenses.
A gift of low-basis stock allows the individual’s child to sell the stock and use the proceeds to fund education expenses. This is beneficial when the individual is
in a higher tax bracket and the student is in a lower tax bracket.
Roth IRAs can be used as a savings vehicle for education purposes. Contributions are removed from a Roth IRA without tax or penalty. Parents and grandparents fund the Roth IRA with the intention of removing the contribution and gifting that amount to the student. If the student does not go to college, or has the costs covered by other means, the contributions can stay in the Roth IRA without concern for tax or penalty
.Cash-value life insurance can also be used as a funding mechanism for college expenses.

Read Financial Planning Guide Here

Begin With The End In Mind-Tax Planning 2016 and Beyond

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“Begin with the End in Mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.”

Steven Covey Habit 2: The 7 Habits of Highly Effective People

In educator and successful businessman Dr. Steven Covey’s seminal work on self-empowerment, “The Seven Habits of Highly Effective People”, he points out in Habit 2 the importance of creating your Personal Mission Statement. The Mission Statement focuses on what you want to be and do. It is your plan for success. It puts your goals in focus, and moves your ideas into the real world.

The mission of tax planning should serve a similar purpose. Tax planning with your tax professional should reflect short and long term goals of you, your family and/or business. It should serve as a roadmap on reaching your goals based on a firm educational foundation and tools to monitor plan progress. Tools to avoid pitfalls and minimize surprises.

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It was with this in mind that the Tax E Man Blog compiled a category on Tax Planning. Tools and topics include

Financial Planning Guide
College Financial Aid Planning
Saving for College
Moving Out Worksheet
Saving for Retirement
Early Retirement Distributions
Newlywed Tax Tips
Pension Income Planning
Social Security and Medicare
Estate Planning, Wills, Probate, and Transfer of Assets

Pat Tax Inc. and Enrolled Agent Patrick White are available to answer questions or concerns and to help in customizing your Tax Plan. Tax Planning Tool and Topic blogs will appear beginning May 1, 2016 and will remain available under the Tax Planning category.

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The Tax E Man Blog, along with our website http://www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

$ 5,500 Interest X $8,000 Qualified Expenses/$10,000 Redemption Proceeds=$4,400 Tax Free Interest

Read 2016 Saving for College Here

Read 2016 Saving for College Here

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