Learning Center for Tax and Financial Insights

Article Highlights:Sec. 529 plans Coverdell Education Savings AccountsThe Lifetime Learning credit Qualified Education Loan InterestSome in Congress have proposed “free” (i.e., government-paid) tuition for community college attendance. Even if that proposal were to become law, it still leaves parents and their children-students responsible for paying for college and university attendance if the student wants a bachelor or other degree. Over the years, Congress has provided a variety of tax incentives to help defray the cost of education. Some tax-related education benefits are currently available while others will be beneficial only with long-range planning, and the sooner these plans are implemented, the better. Education Savings Plans - If your children are below college age, there are tax-advantaged plans that allow you to save for the costs of their higher education. While no tax deduction is allowed for contributions to the plans, they do provide tax-free accumulation of earnings; so, the earlier they are established, the more benefit you’ll get from them. Section 529 Plans - Section 529 Plans (named after the section of the IRS Code that created them) are plans established to help families save and pay for education expenses in a tax-advantaged way and are available to everyone, regardless of income. These state-sponsored plans allow you to gift large sums of money for a family member’s college education while maintaining control of the funds. The earnings from these accounts grow tax-deferred and are tax-free, if used to pay for qualified higher education expenses. They can be used as an estate-planning tool as well, providing a means to transfer large amounts of money without gift tax. With all these tax benefits, 529 Plans are an excellent vehicle for college funding. Section 529 Plans come in two types, allowing you to either save funds in a tax-free account to be used later for higher education costs, or to prepay tuition for qualified universities. For 2022, you can contribute $16,000 without gift tax implications (or $32,000 for married couples who agree to split their gift). The annual amount is subject to inflation-adjustment. There is also a special gift provision allowing the donor to prepay five years of Sec 529 gifts up front without gift tax. The original intent of Section 529 Plans was to help taxpayers accumulate funds for college and university expenses. However, in recent years Congress has expanded the definition of eligible expenses to include the following:Elementary and Secondary School Tuition Expenses – The Tax Cuts and Jobs Act (2017) included a provision that treats withdrawals from 529 plans for elementary or secondary school (kindergarten through grade 12) tuition expenses as qualified expenses. However, the annual withdrawal for each beneficiary is limited to $10,000 (regardless of the number of 529 plans in the beneficiary’s name). This special $10,000 amount applies only for tuition (not books, supplies, room and board, etc.) paid to public, private or religious schools. But remember, the primary goal of these plans is amassing tax-deferred investment income, which then can be withdrawn tax-free to pay qualified education expenses. Using these funds too early will not achieve the desired goal of accumulating and compounding investment income. Thus, you should carefully consider whether to use the funds for elementary and secondary school education expenses or to wait and tap the account for post-secondary education, with the latter choice maximizing investment income.Apprenticeship Expenses - The category of qualified expenses was expanded by the Secure Act to include fees, books, supplies, and equipment required to participate in registered apprenticeship programs certified by the Secretary of Labor under Sec 1 of the National Apprenticeship Act, effective for distributions made in years after 2018. Repayment of Student Loans - Another Secure Act addition to qualified expenses is effective for distributions after 2018 from a 529 plan of up to $10,000–a lifetime limit–that may be used to pay the principal and interest on qualified higher education loans of the designated beneficiary or a sibling of the designated beneficiary. To prevent double-dipping, Sec 529 plan distributions used to pay interest on the education loan cannot be used for the above-the-line deduction for student loan interest (discussed later in this article). Coverdell Education Savings Account - These accounts are actually education trusts that allow nondeductible contributions to be invested for a child’s education. Tax on earnings from these accounts is deferred until the funds are withdrawn, and if used for qualified education purposes, the entire withdrawal can be tax-free. Qualified use of these funds includes elementary and secondary education expenses in addition to post-secondary schools A total of $2,000 per year can be contributed (but is not deductible) for each beneficiary under the age of 18. The ability to contribute to these plans phases out when the modified adjusted gross income of the contributor is between $190,000 and $220,000 for married taxpayers filing jointly, and between $95,000 and $110,000 for all others.

As the old saying goes, "If you fail to plan, you plan to fail." Whoever coined that phrase was absolutely talking about finances, whether they realized it or not.According to one recent study, a general lack of financial education costs Americans a collective $415 billion every single year. Not only is the average amount of credit card debt that someone carries over $6,000 according to the same source, but roughly 40% of people report having less than $300 in their savings accounts. This issue has only been exacerbated by the COVID-19 pandemic, where people have needed to draw from whatever money they have saved up to make ends meet.Having said that, all hope is certainly not lost. There are several important steps that anyone can use to take control of their finances in the new year — it simply requires them to keep a few key things in mind along the way.The Path to a Better Financial Future Begins NowBy far, one of the most effective ways to build a better financial future for yourself involves taking advantage of the myriad of different services that most banks have to offer.When you log into your preferred banking app of choice, for example, you're normally greeted with reminders — which, if you're like most people, you probably ignore — of the advanced services that are available. You should really pay more attention to them, though, as some can help perform an automatic credit check to help clue you in on when issues arise with your credit report immediately. You can set up automatic transfers from your checking into your savings account to help save as much money as possible with each paycheck. A lot of banks even offer free financial planning services provided that you already have a line of credit with them. Regardless, these are all tools that should be taken advantage of.Another one of the best ways to take control over your financial situation in the new year involves making a proactive plan about what you're going to do with your tax refund before you get it. Yes, it's true that virtually nobody looks forward to doing their taxes. Yet at the same time, it's a necessity — and it's also only a negative situation if you allow it to be one.

Article Highlights:Rough tax season ahead?Avoiding processing delaysIRS processing timeDon’t procrastinateIRS customer service problemsThis could be another rough tax season for the IRS and taxpayers. Although this year’s filing season opens January 24, 2022 (i.e., it is the first day the IRS will accept and start processing 2021 returns), the Service still has a backlog of prior year returns to process and is plagued by staff shortages due to the pandemic and reduced funding in the last few years. Even though the majority of 2020 returns were filed electronically, many of those returns still required manual review, resulting in significant delays in IRS issuing refunds. This was the case with millions of 2020 returns of taxpayers who received unemployment compensation and had filed before Congress passed a law that retroactively exempted up to $10,200 of 2020 unemployment income per filer (that provision has not been extended to 2021). Human review was also required for a significant number of returns on which the Recovery Rebate Credit had to be reconciled with the Economic Impact Payments #1 and #2. Similar issues are likely to affect 2021 returns, especially those where taxpayers received Advance Child Tax Credit (ACTC) payments and/or Economic Impact Payment #3, both of which must be reconciled on the 2021 return. Thus, to avoid return processing delays it is important to include the correct amounts received when doing the reconciliation. In January the IRS began issuing Letters 6419 (for the ACTC) and 6475 (for EIP #3) to taxpayers; these letters provide the information needed for making the reconciliation calculations. Be sure you provide these letters to your tax return preparer. Having an accurate tax return can avoid processing delays, refund delays and later IRS notices.Despite reduced staffing and the continuing pandemic, the IRS projects that for this tax season they’ll process electronically filed returns and pay refunds that are designated to be direct deposited in the taxpayer’s bank account within 21 days of receiving the return. While this turnaround time can’t be guaranteed, the earlier you file, the better the chance that you’ll see your refund within that time frame. If the IRS systems detect a possible error, missing information, or there is suspected identity theft or fraud, the IRS may need to correspond with the taxpayer, requiring special handling by an IRS employee. In that case, it may take the IRS more than the normal 21 days to issue any related refund. Sometimes the IRS can correct the return without corresponding, and the IRS will then send an explanation to the taxpayer.

Are you the type who makes New Year’s resolutions? Though the vast majority of those who pledge self-improvement focus on losing weight or exercising more, deciding to brush up on your bookkeeping habits may actually be smarter – and easier to stick to. If you’ve ever found yourself shaking your head at your own process, the beginning of the year is the perfect time to correct inefficiencies and counter oversights. There’s no reason to overhaul everything; just making changes for how you go about things in the future will make a significant difference. Here are some of our top tips for small steps that will go a long way towards improving your operations in 2022.Get away from hard copiesOne of the top reasons people give for not going paperless is that they have too many paper records to convert. The truth is that you can keep your paper files and still switch over to digital. All you have to do is check the box to convert to paperless as you log on to each of your accounts. You’ll be amazed at how much lighter you feel without account statements filling your snail mail mailbox, and how easily you can access information with the ‘find’ function of your computer.Where autopayment is available, activate itWhy should you go through the process of tracking and paying monthly bills manually? As long as you have plenty of cash in your payment account you can set yourself up with autopay and move on to more important tasks.Separate your business accounts from your personal accountsThis is one of the top pieces of advice for every business owner, and if you haven’t done it previously then now is the time. Things are going to get even more complicated with the changes in tax law that take effect in 2022, so make it easier on yourself by setting up separate accounts.Create a recurring monthly date for reviewing your bookkeeping and accounting numbersThink about how many times you’ve found yourself confronted with some kind of bookkeeping emergency or question that has stopped you in your tracks and sent you scrambling for answers. If you set a date with yourself once a month that is specifically for reviewing your financial issues, you’ll avoid the sense of urgency and enter the discussion prepared.Anticipate and prepare for your tax needsIf you find yourself worrying about how you’re going to pay your tax bill each year, it means that you’re not paying attention. If you know how much you’re making then you have a good idea of how much you’re going to owe, and you should be setting those funds aside now so that you’re not stressed later.

The tax season is coming and documents reporting income, sales and other items needed for your 2021 tax return should be arriving soon. Here are some of the common tax forms you need to be on the lookout for depending upon your particular circumstances.

Many people dream of starting their own company, but if you’re one of the few who has turned their dream into reality, you know that it didn’t happen overnight. Making your business a success involved plenty of research, preparation, and hard work that you were happy to invest in. What few who are ready to move on realize is that selling requires almost the same amount of effort and planning. Entrepreneurs intent on selling often want to move as quickly as possible: they may dread the emotional letdown and want to make a clean break, or they may be eager to move on to their next venture. Either way, the more preparation time you put in, the easier and more successful the process will be. Just as home sellers get a better price when they address maintenance issues and throw on a coat of paint before listing, your anticipatory activities will smooth the way for selling painlessly and profitably.Where to start? You want to take a two-pronged approach, looking at what’s yours to make sure that you’re protected, and looking at the business as if you’re a potential buyer to ensure that everything is in order and is as appealing as possible. Here are our recommended steps:Stay Tuned In to the BusinessOnce you’ve made the decision to sell your business, there’s a natural tendency to mentally check out. You need to guard against this, even as you focus on the steps you need to pursue to get the process started and look to your next venture. The success of your sale relies on the company operating at the top of its game, and if you’re distracted or have a loss of interest, that’s not going to happen. Put as much effort into the company’s success as you approach its last day as you did in its first days. Make Your Books — and Everything Else — MeticulousYou may have all the numbers and figures in your head, but that’s no help to a potential buyer. They want – and need — to see the pertinent records, go over the books, and double-check to make sure that everything is running as swimmingly as you say it is. They also want to make sure no legal issues are lurking, or other surprise entanglements. Not only should you get caught up on your accounts, take the time to update all your other financials, get all equipment maintained, organize your inventory, and gather all pertinent paperwork into a clean package that you can present with pride. Doing so will paint a clear picture of your company as a good investment.Ensure that Trademarks and Copyrights in PlaceYou’ve built a brand, but have you secured it? If you haven’t secured a copyright, patent, trademark, or whatever other protection is suitable for your business, your most valuable asset may end up in someone else’s hands. If you’ve been gliding along without the help of an attorney then it’s past due time to hire one – even if you’re about to walk away.Establish Your Exit StrategyDo you intend to just walk away once all the paperwork is signed, or do you want to continue to play a role in the business you created? There’s no right or wrong answer, but you need to figure it out before you start the sales process so you can present your plan as part of the package. Nothing will kill a deal faster than springing a previously unknown detail on a buyer whose plans don’t mesh with yours. Along the same lines, you need to consider what your post-ownership plan consists of. If you’ve already lined up a new gig that provides financial stability then you’re all set, but if not then your deal may need to include details of deferred payments, stock options, maybe even a consulting fee, or other paid position for a period of time. You also need to consider your tax liability from any gains you realize from the sale. If your company qualifies as a qualified small business you may be able to defer the federal tax on your capital gains. Take A Good Look from the Buyer’s PerspectiveOnce you’ve taken all of the steps to prepare for a sale and protect yourself, take a final hard look at what you’re putting on the market. Just as you’d walk through your house and give it a once-over before you have an open house, you need to scrutinize the way the company’s assets look from a potential buyer’s perspective to see if there’s anything else you could have done to optimize or reveal its appeal.