Fall Tax Planning Tips

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Jie Lin Tax Associate, Moneta Group Tax Strategies

The foliage is starting to turn and pumpkin-spice-flavored-everything has taken over our grocery stores. These are signs that fall has arrived, which means that tax preparation is probably the last thing on your mind. But by carefully evaluating your current tax issues now, you can avoid a lot of trouble for the next tax season by minimizing your tax liability.

Here are some fall tax tips!

Back to School – Education credits

  1. American Opportunity Tax Credit/Lifetime Learning Credit
    With school back in session and your back-to-school shopping completed, it’s time to come out with a game plan to save some tax dollars. If you or your dependents are paying tuition to college in the fall, you may be able to reduce some education costs by claiming the educational credits on your tax return.
  • American Opportunity Tax Credit. Parents of students may be able to claim this credit up to $2,500 per student per year for qualified education expenses paid in the first four years of post-secondary education. Additionally, up to 40% of the credit is refundable if the credit exceeds your tax liability. The credit can be claimed by joint filers whose modified adjusted gross income (MAGI) is less than $180,000 or by single filers whose MAGI is less than $90,000.
  • Lifetime Learning Credit. Unlike the American Opportunity Tax Credit, the maximum credit amount is $2,000 per return rather than per student. There is no limit on the number of years you can claim the credit, which means you can claim the credit if you are pursuing a program beyond the undergraduate degrees. The MAGI limit to claim the credit is $130,000 for joint filers and $65,000 for single filers in 2016.
  1. Funding 529 plans can now pay for laptops.
    Are you planning to buy a laptop or new computer software for school this year? The good news is you can use funds from your college savings account to pay for these bills now. Congress passed the “Protecting American from Tax Hikes Act of 2015” (or “PATH Act”) in late December 2015 to include computers, computer software, internet access and related services used by the beneficiary as qualified education expenses while enrolled at an eligible educational institution. However, it’s important to first confirm that purchases are essential to the school program in order to avoid taking a nonqualified distribution that triggers tax and penalty.

Are your sports tickets deductible?

Are you taking a client to a sporting event for business purposes? Generally you can deduct up to 50% of the cost for the tickets under “meal and entertainment” tax rules when the expense is directly related to your business. Furthermore, if you are required make a payment to your favorite college for the privilege of purchasing season tickets, 80% of that payment is tax-deductible as a charitable contribution.

Checked your withholding lately?

You’ve probably filed your tax return by now and locked it in a drawer. You assume you don’t have to deal with it again until next year. Is this true? Actually there is one more item you should consider – your tax withholding. Your withholding is the amount of tax deducted from your paycheck every month to cover your tax liability. You may need to adjust your withholding due to several life-altering events such as marriage, divorce, change of jobs, purchase of home and other changes that will affect your taxes substantially. Carefully monitoring and adjusting your tax withholding can avoid underpayment penalties or overpaying your taxes.

Keep track of your charitable donations

Everyone gets busy with all the major holidays you celebrate in winter, so fall is probably the best time to start tracking your charitable donations if you’ve not already started. Many of us donate to charities, but not all of us keep very good records. This could lead to additional tax preparation fees during tax season. If you plan to make a significant donation by the year end as part of your tax strategic planning, this is a great time to contact your financial/tax advisors to revisit your plan or to adjust it.

Remember to use your flexible spending account funds

The flexible spending account (FSA) is a tax-advantaged tool that allows employees to set aside a pre-taxed portion of earnings to pay for certain qualified expenses such as medical, dependent care and others. Some plans allow you to carry over up to $500 of unused funds to the following year and other plans give you an additional two and half months to incur new expenses using prior year funds. You may want to check on these accounts to plan ahead for your next doctor’s office visits, prescription drugs or even new glasses before the funds are forfeited by the year end.

If you have questions and need more tax advice, please feel free to contact your advisors from Moneta Group or our tax team – Tax Strategies.