Category Archives: Individual

Having the Money Talk with Your Children

How much financial knowledge do they have?

Provided by Dane A. Wilson, Wealth Management Advisor

401(k) 403(b) audit SSAESome young adults manage to acquire a fair amount of financial literacy. In the classroom or the workplace, they learn a great deal about financial principles. Others lack such knowledge and learn money lessons by paying, to reference William Blake, “the price of experience.”

Broadly speaking, how much financial literacy do young people have today? At this writing, some of the most recent data appears in U.S. Bank’s 2016 Student and Personal Finance Study. After surveying more than 1,600 American high school and undergraduate students, the bank found that just 15% of students felt knowledgeable about investing. For that matter, just 42% felt knowledgeable about deposit and checking accounts.1

Relatively few students understood the principles of credit. Fifty-four percent thought that having “too many” credit cards would negatively impact their credit score. Forty-four percent believed that they could build or improve their credit rating by using credit or debit cards. Neither perception is accurate.1

Are parents teaching their children well about money? Maybe not. An interesting difference of opinion stood out in the survey results. Forty percent of the parents of the survey respondents said that they had taught their kids specific money management skills, but merely 18% of the teens and young adults reported receiving such instruction.1,2

A young adult should go out into the world with a grasp of certain money truths. For example, high-interest debt should be avoided whenever possible, and when it is unavoidable, it should be the first debt attacked. Most credit cards (and private student loans) carry double-digit interest rates.3

Living independently means abiding by some kind of budget. Budgeting is a great skill for a young adult to master, one that may keep them out of some stressful financial predicaments.

At or before age 26, health insurance must be addressed. Under the Affordable Care Act, most young adults can remain on a parent’s health plan until they are 26. This applies even if they marry, become parents, or live away from mom and dad. But what happens when they turn 26? If they sign up for an HMO, they need to understand how out-of-network costs can creep up on them. They should understand the potentially lower premiums that they could pay if enrolled in a high-deductible health plan (HDHP), but also the tradeoff – they might get hit hard in the wallet if a hospital stay or an involved emergency room visit occurs.3,4

Lastly, this is an ideal time to start saving & investing. Any parent would do well to direct their son or daughter to a financial professional of good standing and significant experience for guidance about building and keeping wealth. If a young adult aspires to retire confidently later in life, this could be the first step. A prospective young investor should know the types of investments available to them as well as the difference between investments and investment vehicles (which many Americans, young and old, confuse).

A money talk does not need to cover all the above subjects at once. You may prefer to dispense financial education in a way that is gradual and more anecdotal than implicitly instructive. Whichever way the knowledge is shared, sooner is better than later – because financially, kids have to grow up fast these days.

Dane A. Wilson may be reached at 216-831-7171 or dwilson@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.
 
Securities offered through 1st Global Capital Corp., Member FINRA/SIPC

Investment returns fluctuate and there is no assurance that a single rate of return will be sustained over an extended period of time. Investments are subject to market risks including the potential loss of principal invested
  
Citations.
1 – stories.usbank.com/dam/september-2016/USBankStudentPersonalFinance.pdf [9/16]
2 – tinyurl.com/yc6ejxjp [10/27/16]
3 – cnbc.com/2017/03/02/parents-need-to-have-real-world-money-talk-with-kids.html [3/2/17]
4 – healthcare.gov/young-adults/children-under-26/ [6/8/17]

 

Three Midyear Tax Planning Strategies for Individuals

Midyear Tax Planning

april 15In the quest to reduce your tax bill, year-end planning can only go so far. Tax-saving strategies take time to implement, so review your options now. Here Nick Leacoma, CPA, Ciuni & Panichi, Inc. Tax Department Senior Manager, offers three strategies that can be more effective if you begin executing them midyear:

Consider your bracket
The top income tax rate is 39.6 percent for taxpayers with taxable income over $418,400 (singles), $444,550 (heads of households) and $470,700 (married filing jointly; half that amount for married filing separately). If you expect this year’s income to be near the threshold, consider strategies for reducing your taxable income and staying out of the top bracket. For example, you could take steps to defer income and accelerate deductible expenses. (This strategy can save tax even if you’re not at risk for the 39.6 percent bracket or you can’t avoid the bracket.)

You could also shift income to family members in lower tax brackets by giving them income-producing assets. This strategy won’t work, however, if the recipient is subject to the “kiddie tax.” Generally, this tax applies the parents’ marginal rate to unearned income (including investment income) received by a dependent child under the age of 19 (24 for full-time students) in excess of a specified threshold ($2,100 for 2017).

Look at investment income
This year, the capital gains rate for taxpayers in the top bracket is 20 percent. If you’ve realized, or expect to realize, significant capital gains, consider selling some depreciated investments to generate losses you can use to offset those gains. It may be possible to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule.

Depending on what happens with health care and tax reform legislation, you also may need to plan for the 3.8 percent net investment income tax (NIIT). Under the Affordable Care Act, this tax can affect taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for joint filers). The NIIT applies to net investment income for the year or the excess of MAGI over the threshold, whichever is less. So, if the NIIT remains in effect (check back with us for the latest information), you may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both.

Plan for medical expenses
The threshold for deducting medical expenses is 10 percent of AGI. You can deduct only expenses that exceed that floor. (The threshold could be affected by health care legislation. Again, check back with us for the latest information.)

Deductible expenses may include health insurance premiums (if not deducted from your wages pretax); long-term care insurance premiums (age-based limits apply); medical and dental services and prescription drugs (if not reimbursable by insurance or paid through a tax-advantaged account); and mileage driven for health care purposes (17 cents per mile driven in 2017). You may be able to control the timing of some of these expenses so you can bunch them into every other year and exceed the applicable floor.

These are just a few ideas for slashing your 2017 tax bill. To benefit from midyear tax planning, consult Nick Leacoma, CPA, at 216-831-7171 or nleacoma@cp-advisors.com. If you wait until the end of the year, it may be too late to execute the strategies that would save you the most tax.

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Save Tax Dollars and Fund Your Health Savings Account

What’s the right tax-advantaged account to fund your health care expenses?

Jeff SpencerHealth care costs continue to climb. Jeffrey R. Spencer, CPA, MAcc, Ciuni & Panichi, Inc. Principal, explains some tax-friendly ways to cover your health care expenses.

Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But it’s important to know the difference to figure out what works best for you. Here’s an overview:

HSA
If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for individual coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

The advantage of an HSA is you own the account and it can bear interest or be invested, growing in tax-deferred dollars similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA
Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses, so you are paying for medical expenses with pretax dollars.

However, you need to predict your annual medical expenses because what you don’t use by the plan year’s end, you generally lose. Some plans may allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution.

HRA
An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

The best advice we can offer is: “Don’t go it alone.” We’re here to help you make the right financial decisions for yourself and your employees. Please contact Jeff at 216-831-7171 or jspencer@cp-advisors.com for more information.

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Getting Comfortable with the Home Office Tax Deduction

Tax Smart Gifting Strategies

© 2016

There’s still time for homeowners to save with green tax credits

Save with Some Green Tax Credits

TJCThe income tax credit for certain qualified residential alternative energy expenditures is still available through 2016.  The credit has been extended in part through 2021 by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). So, you still have time to save both energy and taxes by making some eco-friendly investments.

What qualifies
The tax credit for residential alternative energy expenditures equals 30 percent of qualified alternative energy expenditures through 2016.  Beginning in 2017 the credit is only available for solar electric property and solar water heating property.  The credit is 30 percent through 2019 then is reduced to 26 percent for year 2020 and 22 percent in 2021.

Examples of improvement investments potentially eligible for the 30 percent credit in 2016 include:
• Eligible solar water heaters,
• Solar electricity equipment,
• Fuel cell plants,
• Small wind energy property, and
• Qualified geothermal heat pump property.

The taxpayer’s basis in their home must be reduced by the amount of the credit allowed.  Also, the credit is a nonrefundable tax credit.  This means that it can only be taken to the extent of your income tax.  The credit is available against alternative minimum tax as well.  Any credit amounts in excess of the taxpayer’s tax liability are available for carryover to the next year.

Manufacturer certifications required
When claiming the credit, you must keep with your tax records a certification from the manufacturer that the product qualifies. The certification may be found on the product packaging or the manufacturer’s website. Additional rules and limits apply. For more information about these and other green tax breaks, contact Ciuni & Panichi, Inc. Partner Tony Constantine, CPA, at 216-831-7171 or tconstantine@cp-advisors.com.

© 2016

Getting Comfortable with the Home Office Tax Deduction

home officeHome Office Tax Deduction

by: Eden LaLonde, CPA, MAcc

One of the best aspects of working at home is the easy commute. The second best part is it may qualify you for a tax deduction.

IRS rules require that you generally maintain a specific area in your home for use regularly and exclusively in connection with your business. What’s more, you must use the area as your principal place of business or, if you also conduct business elsewhere, use the area regularly to conduct business, such as for meeting clients and handling management and administrative functions. If you’re an employee, your use of the home office must be for your employer’s convenience and benefit.

The Internal Revenue Code provides a standard method to calculate the deduction for your home office based on the percentage of your home devoted to business use. You deduct the percentage (proportionate to the percentage of square footage used for the home office) of indirect home office expenses, including mortgage interest, property taxes, association fees, insurance premiums, utilities (if you do not have a separate hookup), security system costs, and depreciation (generally over a 39-year period). In addition, you deduct direct expenses, including business-only phone and fax lines, utilities (if you have a separate hookup), office supplies, painting and repairs, and depreciation on office furniture.

The other option is an easier way to claim the deduction, known as the simplified method. Under this method, you multiply the square footage of your home office (up to a maximum of 300 square feet) by a fixed rate of $5 per square foot. You can claim up to $1,500 per year using this method. Of course, if your deduction will be larger using the standard method, that’s the way to go.

The best advice we can offer is, “Don’t go it alone.” Contact Ciuni & Panichi or Eden LaLonde, CPA, MAcc, at 216-831-7171 or elalonde@cp-advisors.com.

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Student Loan Debt? Here’s Some Help.

College Funding Options

College Funding Options

College Funding Options:  You can plan to meet the costs through a variety of methods.

Provided by Dane A. Wilson, Wealth Management Advisor

DaneWilson-01 smaller2How can you cover your child’s future college costs? Saving early (and often) may be the key for most families. Here are some college savings vehicles to consider.

529 plans. Offered by states and some educational institutions, these plans let you save up to $14,000 per year for your child’s college costs without having to file an IRS gift tax return. A married couple can contribute up to $28,000 per year. (An individual or couple’s annual contribution to the plan cannot exceed the IRS yearly gift tax exclusion.) These plans commonly offer you options to try and grow your college savings through equity investments. You can even participate in 529 plans offered by other states, which may be advantageous if your student wants to go to college in another part of the country.1,2

While contributions to a 529 plan are not tax-deductible, 529 plan earnings are exempt from federal tax and generally exempt from state tax when withdrawn, as long as they are used to pay for qualified education expenses of the plan beneficiary. If your child doesn’t want to go to college, you can change the beneficiary to another child in your family. You can even roll over distributions from a 529 plan into another 529 plan established for the same beneficiary (or for another family member) without tax consequences.1

Grandparents can start a 529 plan, or other college savings vehicle, just as parents can; the earlier, the better. In fact, anyone can set up a 529 plan on behalf of anyone. You can even establish one for yourself.1

529 plans have been improved for 2016 with two additional features. One, you can now use 529 plan dollars to pay for computer hardware, software, and computer-related technology, as long as such purchases are qualified higher education expenses. Two, you can now reinvest any 529 plan distribution refunded to you by an eligible educational institution, as long as it goes back into the same 529 plan account. You have a 60-day period to do this from when you receive the refund.3

If you have a 529 plan and received such a refund at any time during January 1-December 18, 2015, you have until Tuesday, February 16, 2016 to put that money back into your 529 plan. If you meet that deadline, the distribution will not be seen as a non-qualified one by the IRS (i.e., fully taxable plus a 10% penalty).3

Coverdell ESAs. Single filers with adjusted gross income (AGI) of $95,000 or less and joint filers with AGI of $190,000 or less can pour up to $2,000 annually into these tax-advantaged accounts. While the annual contribution ceiling is much lower than that of a 529 plan, Coverdell ESAs have perks that 529 plans lack. Money saved and invested in a Coverdell ESA can be used for college or K-12 education expenses. Coverdell ESAs offer a broader variety of investment options compared to many 529 plans, and plan fees are also commonly lower.4

Contributions to Coverdell ESAs aren’t tax-deductible, but the account enjoys tax-deferred growth and withdrawals are tax-free so long as they are used for qualified education expenses. Contributions may be made until the account beneficiary turns 18. The money must be withdrawn when the beneficiary turns 30 (there is a 30-day grace period), or taxes and penalties will be incurred. Money from a Coverdell ESA may even be rolled over tax-free into a 529 plan (but 529 plan money may not be rolled over into a Coverdell ESA).2,4

UGMA & UTMA accounts. These all-purpose savings and investment accounts are often used to save for college. When you put money in the account, you are making an irrevocable gift to your child. You manage the account assets. When your child reaches the “age of majority” (usually 18 or 21, as defined by state UGMA or UTMA law), he or she can use the money to pay for college. However, once that age is reached, that child can also use the money to pay for anything else.5

Cash value life insurance. If you have a “cash-rich” permanent life insurance policy, you can take a loan from (or even cash out) the policy to meet college costs. The principal portions of these loans are tax-exempt in most instances. Should you fail to repay the loan balance, the policy’s death benefit will be lower, however.6

Did you know that the value of a life insurance policy is not factored into a student’s financial aid calculation? That stands in contrast to 529 plan funds, which are categorized as a parental asset even if the child owns the plan.6

Imagine your child graduating from college debt-free. With the right kind of college planning, that may happen. Talk to a financial advisor today about these savings methods and others.

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

Dane A. Wilson may be reached at 216-831-7171 or dwilson@cp-advisors.com
cp-advisors.com.
Citations.
1 – irs.gov/uac/529-Plans:-Questions-and-Answers [8/24/15]
2 – time.com/money/3149426/college-savings-esa-529-differences-financial-aid/ [8/21/14]
3 – figuide.com/new-benefits-for-529-plans.html [1/13/16]
4 – time.com/money/4102891/coverdell-529-education-college-savings-account/ [11/9/15]
5 – franklintempleton.com/investor/products/goals/education/ugma-utma-accounts?role=investor [2/3/16]
6 – investopedia.com/articles/personal-finance/102915/life-insurance-vs-529.asp [10/29/15]

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.