Kids Going To College? What They DON'T Need!!

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The air is thick with anticipation in many a household this week! Either kids are going back to college or you are one of those nervous parents sending a kid off for the first time! To the latter, you are probably in sticker shock over the bills for tuition, room & board, and fees for this & fees for that. You are excited, you are stressed, it's easy to just swipe the ol' plastic now & "deal with it later", since you happen to be one of those who just can't say "No" to the long wish list. 

Not all college students' needs are the same, however, I have a list of items that a college student can do WITHOUT that would apply to college goers in general. 

A High End Laptop or Computer One does not need a high end laptop/computer, an inexpensive one should do the trick. While shopping for laptops recently for my daughter, I found a Dell Inspiron 15R Intel Core i3, powerful and affordable for about $400 at Office Max. It has a 15.6" screen, sufficient memory & a powerful hard drive. 

A Printer A lot of colleges are already charging you "technology fees" included in room &

board, some almost $100 a semester. If one purchased a flash drive, you could not only print from your dorm room to a computer-lab, you could also save money on a printer, paper and ink. 

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Textbooks Many universities offer textbook rentals for prerequisite or core curriculum courses. One can download or access e-books from your laptop or comparison shop & buy used books as long as they are the recommended edition. Some website like www.slugbooks.com make comparisons between various sites easy. 

Pricey Smart Phone Plans Explore less-expensive, no-contract plans before signing up for a pricey long time contract with a data plan for your student. Many no-contract plans, like the ones from Walmart, Virgin Mobile or Boost Mobile, offer very reasonable plans with unlimited talk & text and even data plans. If you have a family plan which your college goer is using then make a comparison & check if you will save with taking him off and getting him one of the above listed plans. 

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Cable Plans So many channels now stream entertainment & news online. All one needs is a web-enabled device like a laptop or a gaming device. One can catch TV shows on websites like Hulu.com, watch episodes of your favorite shows on the networks' own sites. College students can get breaks for some premium options if signing in with their .edu email address. Movies can be also streamed through Netflix. Most of these subscription options work out less costly than going for a cable plan. 

A Vehicle According to AAA, a small car could add up to about $3,200 in expenses for gas, insurance and standard maintenance. Add to this, parking permits, repairs and tickets if any, so if your college kid is in a dorm, it would be less expensive to park the car at home. 

A Big Meal Plan I have heard of the Freshman 15, so reading up on ways to avoid over doing the meal plan in college, I found that parents can start low and see how much the student is eating and review the plan midyear. This works out better since most meal plans cannot be rolled over if unused. Kids can be given gift cards to use at local groceries or eateries. 

Campus Health Insurance Family Health Coverage extends to college going kids as well. Compare what the campus insurance offers if your child is going out of state to see if your plan out-of-network costs far out weigh campus insurance premiums. If they don't keeping your kid under family coverage usually works out better. 

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Credit Cards According to Sallie Mae, an average freshman racks up nearly $755 in card debt. A good way to start off is with a Debit Card. To prove their ability to handle use of a credit card, anyone younger than 21 years of age is required to have an adult over 21 years or a parent co-sign the application or prove an ability to repay debts. 

High Bank Fees It is better to open an account for your college kid with a branch on campus and with nation-wide coverage. If she/he is going out-of-state, it will not benefit to open an account with a bank in your hometown and pay fees every time money is withdrawn from a local ATM on campus. These fees could add up. It is also advisable to know if the student's bank will charge for transferring funds online. It is safer to transfer funds than to mail checks. One could also benefit from a membership with a credit union which belongs to a surcharge-free network. 

Private Loans One would be lucky to totally avoid college loans, the high-cost of education make loans necessary, they have to be incurred and paid off (See this earlier post). Staying clear of private loans can save you lot of money, federal loans have better rates and repayment options. 

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Please read my disclaimer here. For more questions regarding this and other matters, I can be contacted at manasa@mntaxsolutionsllc.com.

Home Office Deduction- Changes for 2013

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If you use your home for business, there are expenses you can deduct on your tax return. The home office deduction is available to home owners & renters alike. The home must be used by a self-employed individual or an employee  who works from home for his employer's convenience. 

This deduction has been available for a long time now, however with the tax year beginning January 1st, 2013 (filing in 2014), the Internal Revenue Service issued Rev Proc. 2013-13. This revenue procedure details an optional safe harbor available to individual tax payers for calculating a home office deduction. 
The individual can claim the Home Office Deduction based on either the Simplified Method or the Regular Method (Details Follow). 

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Simplified Option: 

• A standard deduction of $5 per sq foot for a home used for business up to a maximum of 300 sq feet. 
• No home office depreciation deduction is allowed nor is a later recapture for the years the simplified option was used. 
• Allowable home related expenses, such as, Mortgage Interest or Property Taxes is claimed in full on Schedule A. 
• Expenses in excess of income cannot be carried forward. Nor can a loss carryover from a previous regular method used be claimed. 

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Regular Method: 

• Actual Expenses determined for percentage of the home used for the business will be used. 
• Home related expenses will be apportioned between Schedule A & the business Schedule C or F. 
• Depreciation and depreciation recapture for portion of home used for business can be claimed.                            
• Amount in excess of gross income limitation can be carried forward. 

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What Method do I Use?

• Either of the above methods can be used for the tax year.
• Once the method is chosen for a taxable year, it cannot be changed to the other method for the same tax year. 
• If the simplified option is used one year & later changed to the regular method, the depreciation for the subsequent year should be calculated using appropriate optional depreciation table. 
• The regular method requires detailed record keeping but the simplified option does not. 
• The home office deduction under the simplified option is limited to $1500. 
• Both the methods should be compared to yield the most beneficial deduction to the tax payer. 

Bibliography: 

1. Revenue Procedure 2013-13
2. Internal Revenue Service
3. AICPA.org

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Please read my disclaimer here. For more questions regarding this and other matters, I can be contacted at manasa@mntaxsolutionsllc.com. 

 

The New Medical Expenses Deduction

Medical Expenses you paid during the year can qualify you for a deduction on your tax return via Schedule A. It does not matter when the services were provided. 

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IRS Pub 502 has a detailed explanation of the expenses that are deductible, suffice it to say any expenses incurred primarily to alleviate or prevent a physical or mental defect or illness are medical expenses. These expenses do not include those that are merely beneficial to general health, examples being, vitamins or vacations. The expenses can be incurred for yourself, your spouse and your dependents. 

Today's blog post is going to be primarily dealing with the change in the deduction for the Tax Year 2013. This change is effective for the 2013 Tax Return to be filed by you in 2014. You will be affected by this depending on your age, whether you are above or below 65.

Amount To Be Deducted

• If you and your spouse are BOTH under age 65: Total un-reimbursed allowable medical & dental expenses that is more than 10% of your AGI (Adjusted Gross Income) from line 38 of Form 1040. 

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• If you OR your spouse is age 65 or over: You are temporarily exempt from the increase! The exemption applies to any year beginning after 12/31/2012 and ending before 01/01/2017, if you or your spouse attained age 65 during or before the tax year.   
• If you turned age 65 in 2014? 

On your 2013 Return: Use 10% of your AGI as a threshold
On your 2014 Return: Use 7.5% of your AGI as a threshold
From 2017 On-wards: Use 10% of your AGI as a threshold

• The amount to be deducted will be figured using Lines 1                                                       through 4 of Schedule A, Form 1040. 

Records To Keep:

• For each medical expense, the name & address of medical care provider paid and

  

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  the amount & date of each amount should be kept. 
• In addition, a statement or itemized invoice showing the description of the care received, the person receiving the care and the nature & purpose of the care should be kept. 
• These need not be sent to the IRS with your tax return.

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Please read my disclaimer here. For more questions regarding this and other matters, I can be contacted at manasa@mntaxsolutionsllc.com. 

UPDATE ON THE 3.8% TAX ON NET INVESTMENT INCOME

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The Internal Revenue Service released an early draft of the new Form 8960, Net Investment Income Tax.The IRS prepared this draft of Form 8960 based solely on the proposed regulations issued by the Treasury Department and the IRS and published in the Federal Register on December 5, 2012. 

Even though the regulations are generally proposed to be effective for taxable years beginning after December 31, 2013, taxpayers may rely on such regulations for the 2013 taxable year.

If you remember the IRS had issued proposed regulations in early December. Some of it was outlined earlier in this blog: 

The 3.8% Tax on Net Investment Income Demystified!

With the release of this long-awaited draft form, the IRS brings a little more clarity to Section 1411. The instructions to the form have still to come. That means many aspects to the computations, exceptions to income, allocations to non-passive investors are not known at this present time. 

The link to the draft form is here.

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Please read my disclaimer here. For more questions regarding this and other matters, I can be contacted at manasa@mntaxsolutionsllc.com.

A 401(k) Plan for Self Employed Individuals

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You did it! You quit your job and started that small business that had always been your dream! Exciting times, thrilling ups & downs, you are your own boss--but wait, you do miss the paychecks that arrived regularly every other week. You also miss the medical benefits that the company paid for & that retirement plan you contributed to. What’s more, you also miss that extra oomph on your paycheck-the employer contribution to the company 401(k). 

In my series on Employer Retirement Plans for Small Businesses, let’s first examine the Individual 401(k). This is also known as the Solo 401(k). Unlike other retirement plans, a solo 401(k) is only for sole proprietors or S Corps who have no employees. A spouse can contribute if he or she earns income from the business.

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It comes in both the traditional & Roth version. Just like IRA’s, Traditional is money put away pretax & is taxable when withdrawn. The Roth 401(k) is funded with after-tax dollars & is tax free when withdrawn. One can also split the contributions between the two. Loans can also be taken against savings in 401(k)’s.

Why I like these plans?

• They are ideal to sock away large amounts of money in the good years.
• It helps you save both as an employer & an employee. Here’s how for 2013- you can contribute a maximum of $33500 (Up from $33000 in 2012) as an employer AND $17500 (Up from $17000 in 2012) as an employee- not to exceed a maximum of $51000 (Up from $50000 in 2012) or 100% of the employee’s compensation, whichever is lessor.
• All 401(k) plans allow for catch-up contributions for those 50 years or older. The amounts are $5500 in 2012 & 2013.
• Employee deferrals are immediately 100% vested.

What Are Your Investment Options?

The Investment options are up to you & your financial planner. 

• As owner & trustee; your responsibilities towards an Individual 401(k) are both

  

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  basic & fiduciary. 
• Basic as in the business decisions that need to be taken to keep the plan & employer contributions to be made, not to engage in prohibited actions, filing the required forms with the IRS. 
• Fiduciary, when you act in a position of trust, to hire someone or manage the plan yourself.

Stay informed & know your responsibilities! Or best yet, engage a Tax Professional to take care of the intricacies for you, and help you decide which is the best Retirement Plan for your Small Business.  

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Please read my disclaimer here. For more questions regarding this and other matters, I can be contacted at manasa@mntaxsolutionsllc.com.