Monthly Archives: June 2016

The 529 savings plan: A tax-smart way to fund college expenses

Tax Savings with a 529 Plan

collegeIf you’re saving for college, consider a Section 529 plan. Although contributions aren’t deductible for federal purposes, earnings avoid income taxes if used for qualifying educational expenses. In addition, many states, including Ohio, offer tax incentives for contributions.

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and most states, thus making the tax deferral a permanent savings.

529 plans offer other benefits as well:

  • They usually offer high contribution limits, and there are no income limits for contributing.
  • There’s generally no beneficiary age limit for contributions or distributions.
  • You can control the account, even after the child is of legal age.
  • You can make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions and make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse).

The biggest downside may be that your investment options — and when you can change them — are limited.

It’s important to manage your withdrawals from your 529 to fully take advantage of the eligible tax credits. For example, you can benefit from both 529 withdrawals and educational credits in the same year, however the same expenses cannot qualify for both the 529 income exclusion and the educational credit.

The best advice we can offer is, “Don’t go it alone.” Contact James Komos, CPA, CFP, at Ciuni & Panichi, Inc. today to explore tax strategies that will position you for a good tax season in 2017 at 216-831-7171 or jkomos@cp-advisors.com.

The Brexit Shakes Global Markets

 A worldwide selloff occurs after the United Kingdom votes to leave the European Union.

Provided by Dane A. Wilson, Wealth Management Advisor

DaneWilson-01 smaller2A wave of anxiety hit Wall Street Friday morning. Thursday night, the United Kingdom elected to become the first nation state to leave the European Union. The “Brexit” can potentially be finalized as soon as the summer of 2018.(1)

Voters in England, Scotland, Wales, and Northern Ireland were posed a simple question: “Should the United Kingdom remain a member of the European Union or leave the European Union?” Seventy-two percent of the U.K. electorate went to the polls to answer the question, and in the final tally, Leave beat Remain 51.9% to 48.1%.(2,3)

The vote shocked investors worldwide. The threat of a Brexit was supposed to have decreased. As late as Thursday, key opinion surveys showed the Remain camp ahead of the Leave camp – but at 10:40pm EST Thursday, the BBC called the outcome and projected Leave would win.(4)

Why did Leave triumph? The leaders of the Leave campaign hammered home that E.U. membership was a drag on the U.K. economy. They criticized E.U. regulations that impeded business growth. They felt that the U.K. should no longer contribute billions of pounds per year to the E.U. budget. They had concerns over E.U. immigration laws, which permit free movement of people among E.U. nations without visas.(1)

Financial markets were immediately impacted. The pound fell almost 11% Thursday night to a 31-year low, and the benchmark U.K. equities exchange, the FTSE 100, slipped 5% after initially diving about 8%. Germany’s DAX exchange and France’s CAC-40 exchange respectively incurred losses of 7% and 9%. In Tokyo, the Nikkei 225 closed nearly 8% lower, taking its largest one-day slide since 2008.(5)

Stateside, S&P 500 and Nasdaq Composite futures declined more than 5% overnight; that triggered the Chicago Mercantile Exchange’s circuit breaker, briefly interrupting trading. The Chicago Board Options Exchange Volatility Index, or CBOE VIX, approached 24 after midnight. The price of WTI crude fell more than $2 in the pre-dawn hours.(5,6)

At the opening bell Friday, the Dow Jones Industrial Average was down 408 points. The Nasdaq shed 186 points at the open; the S&P, 37 points.(7)

Fortunately, the first trading day after the Brexit referendum was a Friday, giving Wall Street a pause to absorb the news further over the weekend.

How could the Brexit impact investors & markets going forward? Consider its near-term ripple effect, which could be substantial.

The Brexit could deal a devastating blow to both the United Kingdom and the European Union. Depending on which measurements you use, the E.U. collectively represents either the first or third largest economy in the world. In terms of international trade, its import and export activity surpasses that of China (and that of the United States).(2)

An analysis by the U.K.’s Treasury argued that the country would be left “permanently poorer” by the Brexit, with less tax revenue and lower per-capita GDP and productivity. The Brexit certainly hurt the U.K.’s major trading partners, which include China, India, Japan, and the United States. Some Chinese and American companies have established operations in the U.K. specifically to take advantage of its E.U. membership and the free trade corridors it opens. With the U.K. exiting the E.U., the profits of those firms may be reduced – and the U.K. will have to quickly negotiate new trade deals with other nations. The most recently available European Commission data shows that in 2014, U.S. direct investment in the E.U. topped €1.8 trillion (roughly $2 trillion), with a slightly greater amount flowing back to the U.S.(2)

You could also see a sustained flight to the franc, the yen, and the dollar in the coming weeks. The stronger the dollar becomes, the weaker the demand for American exports.

Investors should hang on through the turbulence. The Brexit is a historic and unsettling moment, but losses on Wall Street should be less severe than those happening overseas. Retirement savers should not mistake this disruption of market equilibrium for the state of the market going forward. A year, a month, or even a week from now, Wall Street may gain back all that was lost in the Brexit vote’s aftermath. It has recovered from many events more dramatic than this.

Dane A. Wilson may be reached at 216-831-7171 or dwilson@cp-advisors.com
cp-advisors.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.Citations.
1 – bbc.com/news/uk-politics-32810887 [6/23/16]
2 – cnbc.com/2016/06/21/uk-brexit-what-you-need-to-need-to-know.html [6/24/16]
3 – bbc.com/news/politics/E.U._referendum/results [6/23/16]
4 – bbc.com/news/live/uk-politics-36570120 [6/23/16]
5 ¬- nytimes.com/aponline/2016/06/24/world/asia/ap-financial-markets.html [6/24/16]
6 – rE.U.ters.com/article/us-usa-stocks-idUSKCN0Z918E [6/24/16]
7 – marketwatch.com/story/us-stocks-open-sharply-lower-joining-global-post-brexit-selloff-2016-06-24 [6/24/16]

Student Loan Debt? Here is Some Help.

Relief begins October 2017 for Public and Not-for-Profit employees burdened with student loan debt

FAEPublic and not-for-profit employees have an opportunity to have their student loans forgiven in October of 2017 thanks to a federal program created to encourage individuals to enter and stay in public and not-for-profit service. The loan forgiveness program is also extended to parents responsible for student loans for their children.

Here’s what you need to know now to take advantage of this reward for your service:

  • The program requires that you have made 120 qualifying loan payments on your eligible federal student loans after October 1, 2007, thus the first loan forgiveness loan balances will be granted in October 2017.
  • Any non-defaulted direct loans are eligible including:
    ♦ Direct Subsidized Loans
    ♦ Direct Unsubsidized Loans
    ♦ Direct PLUS Loans—for parents and graduate or professional students
    ♦ Direct Consolidation Loans
  • Loans under other federal student loan programs may be eligible if they are consolidated into a Direct Consolidated Loan, however only payments to the Direct Consolidated Loan will count in the 120 payment requirement.
  • To qualify you must work full time (30 hours per week) in public service or for a not-for-profit organization and had been working at an eligible organization while paying your 120 loan payments. Examples of eligible employers include:
    ♦ A government organization (including a federal, state, local, or tribal organization, agency, or entity; a public child or family service agency; or a tribal college or university)
    ♦ A not-for-profit, tax-exempt organization under section 501(c)(3) of the Internal Revenue Code
    ♦ A private, not-for-profit organization (that is not a labor union or a partisan political organization) that provides one or more of the following public services:
     Emergency management
     Military service
     Public safety
     Law enforcement
     Public interest law services
     Early childhood education (including licensed or regulated health care, Head Start, and
    state-funded prekindergarten)
     Public service for individuals with disabilities and the elderly
     Public health (including nurses, nurse practitioners, nurses in a clinical setting,
    and full-time professionals engaged in health care practitioner occupations
    and health care support occupations)
     Public education
     Public library services
     School library or other school-based services

For detailed information, including how to monitor your progress toward qualifying for the Public Service Loan Forgiveness Program read the questions and answers document at StudentAid.gov. or contact Frank Eich, Audit and Accounting Services senior manager, at 216-831-7171 or feich@cp-advisors.com.

Why flip real estate when you can exchange it?

Real Estate:  Flip or Exchange?

JRKsmallersmallerThere’s no shortage of television shows addressing real estate these days. Many emphasize “flipping” properties when an adequate gain is reached. But, if you’re ready to move one of your investments, you might prefer to exchange it rather than flip it.

Reviewing the concept
Section 1031 of the Internal Revenue Code allows you to defer gains on real or personal property used in a business or held for investment if, instead of selling it, you exchange it solely for property of a “like kind.” In fact, these arrangements are often referred to as “like-kind exchanges.” The tax benefit of an exchange is that you defer tax and, thereby, have use of the tax savings dollars until you sell the replacement property.

Personal property must be of the same asset or product class. But virtually any type of real estate will qualify as long as it’s business or investment property. If you wish to exchange your personal residence (including a vacation home), you’ll have to first convert it into an investment property.

Executing the deal
Although an exchange may sound quick and easy, it’s relatively rare for two investors to simply swap properties. You’ll likely have to execute a “deferred” exchange, in which you engage a qualified intermediary (QI) for assistance.

When you sell your property (the relinquished property), the net proceeds go directly to the QI, who then uses them to buy replacement property. To qualify for tax-deferred exchange treatment, you generally must identify replacement property within 45 days after you transfer the relinquished property and complete the purchase within 180 days after the initial transfer.
An alternate approach is a “reverse” exchange. Here, an exchange accommodation titleholder (EAT) acquires title to the replacement property before you sell the relinquished property. You can defer capital gains by identifying one or more properties to exchange within 45 days after the EAT receives the replacement property and, typically, completing the transaction within 180 days.

Proceeding carefully
The rules for like-kind exchanges are complex, so these arrangements present some risks. If, say, you exchange the wrong kind of property or acquire cash or other non-like-kind property in a deal, you may still end up incurring a sizable tax hit. Mortgaged properties require special planning.

To avoid the landmines that will cost you money and take advantage of the tax benefits of a real estate exchange, call Jim Komos, CPA, Partner-in-Charge of the Ciuni & Panichi, Inc. Tax Department. His team is dedicated to helping businesses and individuals adhere to tax rules and increase their business. Be sure to call us especially when exploring a Sec. 1031 exchange and definitely before executing any documents.

Contact Jim at 216-831-7171 or jkomos@cp-advisors.com.

You may also be interested in:

Run a business on the side? Tax implications.

IRS Extends ACA Reporting Deadlines

Stock volatility can cut tax on a Roth IRA

Tax Savings

401k ficuciary dutyThis year’s stock market volatility can be unnerving, but if you have a traditional IRA, this volatility may provide a valuable opportunity: It can allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

Traditional IRAs
Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax-deferred.

On the downside, you generally must pay income tax on withdrawals, and, with only a few exceptions, you’ll face a penalty if you withdraw funds before age 59½ — and an even larger penalty if you don’t take your required minimum distributions (RMDs) after age 70½.

Roth IRAs
Roth IRA contributions, on the other hand, are never deductible. But withdrawals — including earnings — are tax-free as long as you’re age 59½ or older and the account has been open at least five years. In addition, you’re allowed to withdraw contributions at any time tax- and penalty-free.

There are also estate planning advantages to a Roth IRA. No RMD rules apply, so you can leave funds growing tax-free for as long as you wish. Then distributions to whoever inherits your Roth IRA will be income-tax-free as well.

The ability to contribute to a Roth IRA, however, is subject to limits based on your MAGI. Fortunately, anyone is eligible to convert a traditional IRA to a Roth. The catch? You’ll have to pay income tax on the amount you convert.

Saving tax
This is where the “benefit” of stock market volatility comes in. If your traditional IRA has lost value, converting to a Roth now rather than later will minimize your tax hit. Plus, you’ll avoid tax on future appreciation when the market stabilizes.

Of course, there are more ins and outs of IRAs that need to be considered before executing a Roth IRA conversion. If your interest is piqued, discuss with Ciuni & Panichi whether a conversion is right for you.  Contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for assistance and more information.

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June Tax Tips

Go and save green with sustainable tax breaks
© 2016

June Tax Tips – Affordable Care Act

employeesHow many employees does your business have for ACA purposes?

It seems like a simple question:  How many full-time workers does your business employ? But, when it comes to the Affordable Care Act (ACA), the answer can be complicated.

The number of workers you employ determines whether your organization is an applicable large employer (ALE). Just because your business isn’t an ALE one year doesn’t mean it won’t be the next year.

50 is the magic number
Your business is an ALE if you had an average of 50 or more full time employees — including full-time equivalent employees — during the prior calendar year. Therefore, you’ll count the number of full time employees you have during 2016 to determine if you’re an ALE for 2017.
Under the law, an ALE:

  • Is subject to the employer shared responsibility provisions with their potential penalties, and
  • must comply with certain information reporting requirements.

Calculating full-timers
A full-timer is generally an employee who works on average at least 30 hours per week, or at least 130 hours in a calendar month.

A full-time equivalent involves more than one employee, each of whom individually isn’t a full-timer, but who, in combination, are equivalent to a full-time employee.

Seasonal workers
If you’re hiring employees for summer positions, you may wonder how to count them. There’s an exception for workers who perform labor or services on a seasonal basis. An employer isn’t considered an ALE if its workforce exceeds 50 or more full-time employees in a calendar year because it employed seasonal workers for 120 days or less.

However, while the IRS states that retail workers employed exclusively for the holiday season are considered seasonal workers, the situation isn’t so clear cut when it comes to summer help. It depends on a number of factors.

We can help
Contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for help calculating your full-time employees, including how to handle summer hires. We can help ensure your business complies with the ACA.

You may also be interested in:

Go and save green with sustainable tax breaks

Run a business on the side?  The tax implications.

© 2016