Planning on paying for college? Try a 529 plan and celebrate 529 Day!

If you have children or grandchildren you may have heard of 529 Plans.  If you are planning on paying, or helping to pay for the college education of a loved one, the 529 Plan is a great option.  Established in 1996, these are college savings plans, similar to Roth IRAs and named after the Internal Revenue Code section that governs them.

The Basics

There are two types of 529 Plans – Prepaid Tuition Plans and Savings Plans.  Prepaid tuition plans are just as they sound.  They allow you to lock in future tuition at today’s rates for state specific schools.  The savings plans are investment vehicles the can be used for future qualified expenses.

You can use 529 plan funds at almost any accredited college or university.  The savings plans can also be used for accredited trade and technical schools.  The recent Tax Cuts and Jobs Act also allowed, at least at the federal level, of distributions from 529 plans to be qualified to pay up to $10,000 a year toward K-12 education expenses.  Most states have yet to decide if they will also treat these distributions as qualifying distributions or will subject the earnings to tax.

Grandparents can set up 529 plans for grandchildren or anyone else, for that matter!

The reason we referred to 529s as like Roth IRAs earlier is because 529 plan investments grow tax exempt, just as a Roth IRA does.  If the distributions are used for qualified expenses – tuition, fees, room and board, books or supplies – the earnings of the account are not subject to tax when withdrawn. If not used for qualified expenses, the earnings are taxable, but not the original contributions.

The definition of qualified expenses for 529 plan distributions is much more generous than the usual definition for education credits.  We are still waiting to hear from the states how they will treat 529 distributions used for K-12 expenses, but at a federal level, those distributions will be considered qualified as well.

Whomever purchases the 529 plan is the custodian and has control of the 529 plan funds until they are withdrawn.  There can be only one designated beneficiary per plan, however the beneficiary can be changed to another member of the beneficiary’s family with no tax consequences.  You can also roll funds over from one child’s account to their sibling’s account without penalty, in a trustee to trustee transfer.

Anyone can set up a 529 plan, however your state may have certain limitations.  You can also name anyone as a beneficiary – a relative, friend or yourself!  Unlike IRA accounts, there are no income restrictions for contributions and no limit to the number of plans you can set up.   If contributions are made to any one beneficiaries account over the annual gift tax limits, a gift tax return may be required to be filed, but an election can be made to spread the gift out over 5 years.

Tax Advantages

One advantage has already been mentioned: contributions grow tax-free, as long as the distributions are used for qualified expenses.  Start investing early and you can take advantage of compounding – where money you earned, earns money!

Some states allow for deductions on your state tax return.   For instance, Virginia allows for up to $4,000  deduction from taxable income, per contract. So, each parent can set up a contract for each child, make a $4,000 to each one and reap the benefits.  Any contributions in excess of the $4,000 limit are carried forward for deduction in future years.

Celebrate 5/29 Day – National College Savings Plan Day

To encourage contributions to state 529 plans, many states are offering incentives to establish an account.  I have linked to a few below and this article on highlights a few other states promotions.


Open an Invest529 account between May 22nd and May 31st with at least $50 and a $50 recurring bank debit and receive $50.  Visit  for details.


Maryland account holders with taxable income within certain parameters may be eligible for a contribution of $250 or $500 from the state. Applications are due June 1, 2018. Visit


New Family Tax Credit for “Other Dependents” May Reduce Your Tax Bill in 2018

For years now we have had the Child Tax Credit (CTC) a $1,000 refundable credit for those dependents that we claim that are qualifying children.  Now there is another credit that takes some of the disadvantages of the CTC and addresses them in the form of an additional credit to reduce your tax bill.

The new Family Tax Credit for “other dependents” could result in a decrease of your tax bill, even for those who have phased out the CTC because their children are age 17 or older.  The credit is also helpful for those that are a part of the sandwich generation and are supporting aging parents who qualify as dependents.

Basics of the Child Tax Credit

The biggest benefit of any credit is that it is a credit.  A credit is a dollar for dollar reduction in your tax bill.  By contrast, a deduction only reduces your taxable income. A good illustration is for someone in the 25% tax bracket, a $1,000 deduction only results in a $250 reduction to the tax bill.  This credit, on the other hand, reduces the tax bill by $1,000. A deduction for individuals in the 25% tax bracket would need to be $4,000 to have the equivalent effect. I know, for at least now through 2025 we don’t have the 25% bracket anymore, but the math works out well for illustration purposes.  In 2018, the Child Tax Credit increases to $2,000 per qualifying child.

To be eligible for the CTC, taxpayers must have qualifying children to claim as dependents (special rules apply to parents of children who are divorced) on their tax returns.  To be qualifying, the children must live with the taxpayer more than half the year, the taxpayer must provide more than 50% of the child’s support and the child cannot be older than 16 years of age.   The credit also phases out in increments as income increases.

In addition, the Child Tax Credit is refundable, meaning even if there is no tax due on a tax return, the taxpayers could receive a check from the government for the amount of their tax credit. In 2018, the refundable portion is limited to $1,400.

The New “Family Tax Credit” for Other Dependents

Taxpayers have long been able to claim those they have supported throughout the year and who have met certain criteria, but while we have been able to continue to claim our children after they have reached the age of 17, the credit has not been available.  If you go through as much milk in a week as we do in our household, you would be happy to take any credit you can get!

The new “Family Credit” is $500 and is nonrefundable. The same thresholds required to claim someone as a dependent apply to those who may qualify for this credit.

New Phaseout Thresholds

Income thresholds have often left two-income families that live in high locality rate locations at a disadvantage when it comes to qualifying for credits.  Think places like DC Metro Area, urban California, New York, etc. These locations often have high salaries, but the cost of living, local taxes, and expenses are also high.  The new tax law increases thresholds and limitations for qualifying for the increased child tax credit.

Tax Filing Status        Max AGI for Full Credit    AGI for  Full Phase Out

Single                                       $200,000                               Over $240,000

Married filing jointly            $400,000                               Over $440,000

Head of household                $200,000                               Over $240,000

Married filing separately    $200,000                               Over $240,000

Elimination of Dependency Exemptions

While the new CTC, Family Tax Credit, and increased thresholds are good news, what isn’t good news is your taxable income is going up, even if you didn’t earn any more money in 2018.  Before, taxpayers were entitled to a dependency exemption of over $4,000 (which was set to increase to $4,150 in 2018) for each person on the tax return. So, a family of four would have had a reduction of their taxable income of $16,600 in 2018, even if they didn’t itemize.  Remember earlier when we were talking about deductions versus credits? That is the same as a $4,150 credit (dollar for dollar reduction in the tax bill) for someone in the 25% tax bracket. Now, the personal exemption is GONE.

The Tax Cuts and Jobs Act (TCJA) has some great new changes, there are others that may cause a bigger pinch than some realize.  I fully recommend that everyone take advantage of the calculators on and prepare for the changes that are coming.

Do you expect a bigger refund or a bigger tax bill for 2018?

The 5 tax rules a military landlord needs to know before renting out their home

The nature of military lifestyle means frequent moves, uncertain surroundings, and the only thing that is constant is change.

Service Members invest in real estate for the same reason anyone does.  It is a nice thought to be building equity in your name rather than someone else’s, it is difficult to find rental properties in desirable areas, at a decent rate, that will take our furry children, housing on post is nonexistent or the wait time is ridiculously long.  

Owning your own home is a feeling unlike any other.  It can be freeing,(you can finally paint those walls in the dining room red) or it can be daunting – you’re the one that has to fix that leaky roof.

A home purchase is often the largest single investment people make.  Here are a few tax rules if you have taken the plunge to purchase a home and decided to rent it out because of a PCS move.   Continue reading

Don’t Leave Money on the Table – Check out these tax credits

Many taxpayers use their tax refund as a sort of forced savings.

As a tax professional, a return is near perfect to me when there is a refund of $100 or less.
   That means that the taxpayer has had full use of their money for the entire year rather than giving the government an interest-free loan.  I do understand the allure of a big refund check all at once, though.   Continue reading

The Reckoning – Time to face those tax documents

The beginning of February is almost like the first week of school or the new year for me.  Taxpayers start receiving their documents and my phone starts ringing with questions about what documents are needed and when can we meet.  My shelf will start to fill with work to be completed and staff will begin to have questions about what exactly to do with this information clients have sent in.  Anticipation starts to build and I make lists, on paper, in my head, and on the computer to prepare for the inevitable onslaught that will be coming in the next 10 weeks or so.

This filing season will be a bit tricky. There are rules that are in effect for 2017 tax year that will be gone for 2018.
 Some of those rules are set to return in 2025, others are gone for good… or until Congress changes their mind. Continue reading

Protect yourself from Tax Related ID Theft

This week I am dedicating space and time to sharing vital information from the Federal Trade Commission on Tax Related Identity Theft.  In my role as a tax professional I have seen mulitudes fall victim to these types of scams.

Take a look below at some valuable information from the FTC.

It’s Tax Identity Theft Awareness Week — Are You Ready?

 Ready for tax season? If you haven’t heard about tax identity theft, you may not be. Continue reading

Tax Related Identity Theft & Info from the FTC

Tax filing season opens today and that makes it open season for scammers that rely on unsuspecting taxpayers.  Over the last few years tax related identity theft has grown to epic proportions.  From impersonating IRS agents and threatening arrest to filing fake tax returns to get a refund, scammers are clever, creative and ruthless.

January 29th through February 2nd is Tax Identity Theft Awareness week and all week on social media I will be sharing information from the Federal Trade Commission about common scams and tips to help you if you fall victim like thousands, perhaps millions, of others.

Tax Scammers Target Might Target You: Here’s What to Do Continue reading

Of Donations and Documentation

Dresses and suits and sweaters and jeans, oh my! Donations to charitable organizations abound. One of the more generous line item deductions on a personal income tax return, the Schedule A itemized deductions allow taxpayers to make charitable contributions of up to 50% of their adjusted gross income (30% for capital gain property) for most taxpayers.

When was the last time you gave stuff away to charity? Do you make a particular effort to get your extra items out the door before December 31st so you could take advantage of deductions on your tax return?

Very generous individuals will see a limitation, but with some special opportunities for carry-forward of limited amounts. Wealthier taxpayers will see an overall limitation of itemized deductions. Of course, there are specifics that always apply, so be sure to consult a tax professional.

Imagine your mom passed away and your dad, grief-stricken, asked you take everything out of the family house. You donate truckloads of items, everything from bedroom sets, televisions, to sofas and rugs.

How would you document those donations?  Are they your donations, or do they belong to your father, or your mother’s estate?  How much effort do you make in keeping track of what you actually give away, its condition, how much was paid it for originally, and how much it is worth when you donate it?  How about if you made a really large donation of a lot small items, too, things that did belong to you and your immediate family personally – clothes, household goods.  What if, according to you, it all adds up to almost $28,000?  Does a spreadsheet with item descriptions and assigned values attached to the blank receipts the agencies hand out seem like sufficient paperwork?

Contrary to popular belief, there are rules about substantiation and documentation for charitable contributions, as well as what organizations qualify as charitable organizations. There are also very clear rules on record-keeping for charitable contributions that many people either overlook or ignore. You must have records of every single contribution of cash or goods, and the rules become even stricter as your contribution amounts increase. If you’ve received anything of value in exchange for your contribution, only the amount in excess of the value of what you received is deductible. For instance, you purchased two tickets to a spaghetti dinner at the local firehouse for $50, and the value of your dinners is $10, then $40 is the amount you are able to deduct.

Before you claim charitable deductions on your tax return, be sure to have the right paperwork.

FOR CASH Less that $250: Bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. These include a canceled check, a bank or credit union statement or credit card statement. ORA receipt (or letter) from the qualified organization showing the qualified organization, the date of the contribution, and the amount of the contribution OR Payroll deduction records such as a pay stub, form W-2 or other document furnished by your employer that shows the date and amount of the contribution AND a pledge card or other document prepared by or for the qualified organization that shows the name of the organization.

FOR CASH greater than $250: A written acknowledgement that must include amount of cash you contributed, whether the qualified organization give you any good or services as a result of your contribution, a description & good faith estimate of the value of any goods or services received and a statement that the only benefit you received was an intangible religious benefit, if that was case. You must get the acknowledgment on or before the earlier of the date you file your return for the year you make the contribution or the due date, including extension for filing the return.

Noncash donations, often made to places like Goodwill and the Salvation Army, have additional recordkeeping requirements. When figuring your donation amount, the claimed contributions must be combined for all similar items of property donated to any charitable organization during the year. As the amount of your goods donation increases, so does your recordkeeping requirement.

FOR ALL NONCASH: Taxpayers should have reliable written records for each item of contributed property. They must include: name and address of the organization, the date and location of contribution, description of the property in reasonable detail, whether the qualified organization give you any good or services as a result of your contribution, a description & good faith estimate of the value of any goods or services received and a statement that the only benefit you received was an intangible religious benefit, if that was case.  You must get the acknowledgment on or before the earlier of the date you file your return for the year you make the contribution or the due date, including extension for filing the return.  You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity’s unattended drop site).

 FOR NONCASH less than $250: A receipt that includes the name of the charitable organization, the date and location of the contribution and a reasonably detailed description of the property. A letter from the organization with the same information may also serve as a receipt.

FOR NONCASH greater than $250 but less than $500: An acknowledgement with the same information as for cash greater than $250, but it must also include a description of any property you contributed.

FOR NONCASH greater than $500 but less than $5,000: An acknowledgement the same as above, but with additional specific records that include:

  • How you acquired the property (purchase, inheritance, give, exchange, etc.
  • Approximate date you acquired the property
  • The cost or other basis, and any adjustments to the basis of property held less than 12 months
  • If available the cost or other basis of property help more than 12 months – If you have reasonable cause for being unable to provide information about the date you got the property or the cost basis of the property, attach a statement to your return.

FOR NONCASH greater than $5,000: All the same information as above, in addition to a written appraisal of the donated property from a qualified appraiser. Over $5,000 in noncash contributions (other than publicly traded securities) must also have the organization sign Part IV of Section B of the 8283.

As you’ve probably guessed, the taxpayer in the situation above was denied the charitable deductions because he lacked substantiation. The Tax Court didn’t address the issue of whether or not the donations from his mother’s property should have been allowed on his return, because the issue before the court was only if the deductions should be allowed based on the substantiation, recordkeeping and documentation.


This article was first published on LinkedIn via LinkedIn Pulse on November 2, 2015.