Back-To-School Anxiety…the Bills!

The time is here. Summer vacations have wound down, backpacks are filled, and new clothes are purchased in preparation for the start of another school year.  Maybe you are preparing your first child for kindergarten or possibly packing up the mini-van for college. Whatever stage you are in, this is surely a busy time of year (and likely expensive too)!

No surprise to you, education costs continue to increase. A report issued by the U.S. Department of Education in March of 2013 shows college costs at the public institutions in the U.S. have increased over 75% in the past ten years. It doesn’t seem to be slowing anytime soon either. The good news is there is some relief at tax time.

American Opportunity Tax Credit – This credit is available for up to $2,500 per eligible student (100% of first $2,000 of expenses and 25% of next $2,000). It is available for the first four years of post-secondary education expenses. Forty percent of the credit is refundable, meaning you would be able to receive up to $1,000 even if you do not owe any federal taxes.

Lifetime Learning Credit – You can claim a tax credit up to $2,000 for education expenses with this credit (20% of up to $10,000 of expenses).  This credit is available for an unlimited number of years, but is non-refundable; therefore you must owe federal taxes to claim the credit.

The American Opportunity and Lifetime Learning Credits cannot be combined and they are subject to income limitations and may be reduced or eliminated depending on your income. Parents can sometimes shift the credit to the student by not claiming the student as a dependent, assuming the other requirements for doing so are met.

Student Loan Interest Deduction – Total federal adjusted gross income can be reduced by up to $2,500 for interest paid on student loans. One item to keep in mind is the loans must be the legal obligation of the taxpayer in order to take the deduction.

If you are an Iowa taxpayer, there are a couple of additional ways to save some taxes:

• Iowa Tuition and Textbook Credit – The State of Iowa provides a credit for eligible education expenses for dependent K-12 students. The credit is equal to 25% of qualified expenses up to $1,000 per student (maximum credit of $250/student). It’s worth a look at the listing of eligible expenses, as a little record-keeping could yield you $250/child when you file your taxes.

• Iowa College Savings Plan – A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code. As an Iowa taxpayer, in 2013, you can contribute up to $3,045 per beneficiary per taxpayer and deduct this amount from your Iowa taxable income. For example, married Iowa taxpayers who contribute on behalf of their two children can deduct up to $12,180 (4 x $3,045). Also, grandparents and other family members are eligible to contribute and obtain the tax benefits.

Benjamin Franklin said, “An investment in knowledge pays the best interest.” Keep that in mind as the bills begin to roll in. As always, remember to discuss the above strategies with your CPA to ease the burden (a bit) at tax time. 

 Kara Hogue, CPA

 

 

Supervisor - McGowen, Hurst, Clark & Smith, P.C.
khogue@mhcscpa.com

Time To File A Tax Return Extension?

OH NO! April 15th is just around the corner and you haven't filed your income taxes!! Now what?  Well, you can try and get them completed by the 15th, or you can file an extension.  About now, you may be asking yourself - "Is it difficult to get an extension?

Well actually, the extension that you file for your individual return is called an Application for Automatic Extension of Time (form 4868).    So as the name implies, it is “automatic.”     There is one caveat.   To file this extension you need to estimate your tax liability for 2012 and report any payments you have already made.  This would include the federal withholding shown on your W-2 and/or any federal tax estimates you made for the 2012 year.   The form 4868 then leads you to calculate your balance due.     However, take note of a common misconception.  The extension is an extension to file your tax return only;   it is NOT an extension to PAY the taxes owed with your return.   Therefore, be prepared that if you owe taxes, you are required to send in a payment with the extension for the balance due.
   

Actually, if you don’t owe any taxes, you don’t even need to file an extension.  It’s true.  You have until October 15^th to timely file your tax return.    As a matter of fact, if you don’t owe any taxes you may never need to file a return...but beware!   If you think you don’t owe taxes and therefore do not file an extension, and later prepare your return (after April 15^th) only to discover you do owe taxes, you will pay a penalty of 5% a month on the balance due from April 15^th until it is paid.   Ouch!    However, if you filed an extension and then determine you owe more taxes, the penalty is only ½ of 1%.   Quite a difference! 

At MHC&S,  it is our policy to file extensions for our clients even if they feel no additional taxes will be owed.  An ounce of prevention can be worth a pound of cure!   

And consider this…many times after you work through the calculations to determine your estimated tax liability,  you may as well have gone ahead and prepared your return, as the time involved could be comparable.  And just think – after sending it off to the IRS – well, that’s one more thing to mark off your list!!  Feels good…doesn’t it?! 

Kathi Koenig, CPA


Partner - McGowen, Hurst, Clark & Smith, P.C.
kkoenig@mhcscpa.com
www.mhcscpa.com

Do you find yourself asking…Where is my refund?

If you are one of the lucky taxpayers who has been able to file your return, and even luckier if you are slated to receive a refund, you may be asking “Where is my refund?”

The IRS has a tool on their website that will help track your refund.   It is called “Where's My Refund?” and you can find it at www.irs.gov  or download the mobile app – IRS2Go.  You can check the status of your refund within 24 hours after the IRS has received your e-filed return or 4 weeks after you have mailed a paper return.

To check the status of your refund on line, you will need to have the following information readily  available:  1) Your social security number, 2) your filing status and 3) the exact amount of your refund.

Once you have entered your information, the website will let you know if the return has been received, if the refund has been approved, and if the refund has been sent.

I have checked this site for several clients and it will usually give you a date that says when your refund was sent.   It’s so easy and very accessible. 

However, this tool is gaining popularity each and every day.   The IRS states they have had an extreme amount of traffic on this website,  so they ask that you check on your refund only once a day as the site is updated every 24 hours – usually at night. 

It is the IRS’ goal to get refunds out to taxpayers within 21 calendar days.  From what I have heard from my clients, they are meeting and exceeding this goal.    If you have questions or need assistance in filing your 2012 tax return, MHC&S would be most happy to help.  Please give us a call at 515-288-3279, and schedule an appointment today.

Kathi Koenig, CPA


Partner - McGowen, Hurst, Clark & Smith, P.C.
kkoenig@mhcscpa.com
www.mhcscpa.com

Delayed IRS Forms Causing Speed Bumps to Filing Your 2012 Tax Return

While we thought we had escaped the turns, twists and bumpy ride of not going over the Fiscal Cliff made possible by last minute tax legislation, another issue has surfaced creating some real speed bumps to filing your 2012 tax return.  If you are one of those people who file your return as soon as you get your W-2 in January and you have your refund by the end of the January, you already know what I am talking about.   The IRS just started accepting returns on January 30^th so the first refunds were not sent until last week.  And that is only if you are one of the lucky ones who can even file yet.

Many people are unable to file due to a delay of availability of key forms that require more programming and testing per the IRS.    For instance, the popular form for parents with children in college—the form 8863 used to claim the two higher education credits is not yet released.   The IRS says it should be available for filing by mid-February.   It is usual that 3 million tax returns are filed by mid-February that include the form 8863.  While this may sound like a lot, it is only a quarter of all the returns that are usually filed by mid-February.   However, if you are one of the parents or students who has to wait, it is probably of little consolation to know that you are one of 3 million who cannot get your refund yet!

Another key form that is still processing and is not expected to be ready until late February or the first of March is the form 4562 used to claim depreciation and amortization deductions.   This form is used by nearly ALL of our business clients delaying them from filing at this time.   Additional forms that are delayed include Form 5695 for residential energy credits and Form 3800 used to claim general business credits.

Now it is possible to file a paper return instead of efiling, if the forms are not considered in “draft” form.  However the paper form will, most likely, just go to the IRS and be stockpiled by them until the form is released.   And then you will have to wait for the IRS to key the return into their system.    All of that will probably take more time than if you just waited and efiled your return when the form was “officially” released.
Also affected by the delayed forms are farmers and fishermen who have a special provision that allows them to not make quarterly estimates without penalty if they file by March 1^st.   Without all of the forms being available, the IRS has extended their due date from March 1^st to April 15^th.     If this applies to you, you must file a form 2210F with your return to be eligible for this extension and waiver of penalty.

If you have questions about what other forms are yet to be released, there is a full list at IRS.gov., or you can contact your tax advisor.  While no one ever promised it would be a smooth ride, anticipating and having knowledge of the delayed forms may make those speed bumps, well … a little less bumpy.

Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Tips for Charitable Deductions

Fall is a season when many people are cleaning out garages, basements and closets. If you are not having a garage sale and some items look too good for the dump or if you do have a garage sale, but have some items left over, consider donating them to charity. You can get a tax deduction for whatever the item is worth.

When you contribute non-cash items to charity, be sure to retain your receipts. Also keep a list of items donated and an estimate of their value. Some of the charities, such as Salvation Army, have a listing of clothing items with a range of suggested values you can use to determine the worth of your donated goods.  There are also computer programs available online for little or no cost that will help you value your contributions. The IRS has become stricter on charitable donations including non-cash contributions. Therefore, including more detail or better yet- taking photos of the items contributed is a good idea especially if it is a substantial amount.

If you are considering a large cash contribution, a better option may be a gift of appreciated stock to a charity. You will be able to deduct the fair market value of the securities, without having to recognize the increase in value as a gain on your tax return. If you take the cash you intended to contribute and move those funds to your investment account, you’ll be left with more money in your pocket at the end of the day.

Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Solving The Equation – Should Kids Help Pay College Tuition?

College expenses continue to rise, and paying for these expenses presents challenges for most families. For those of us who have been down that road, we know the cost of a college education can be staggering.

Because of these high costs, parents have debated for many years whether children should help pay for their college education. While there may not be a clear right or wrong answer to this question, both options have points to consider.

Kids Helping Pay
The old adage of having “skin in the game” applies here. The general thought is that children who are helping to pay for college will be more aware of the costs involved and more likely to take education seriously. They might be more careful about their chosen major and the classes they take, rather than dabbling in various topics of interest without choosing a clear path.

Helping pay for their tuition can also give students a great feeling of responsibility and maturity. After all, they are on the path to independence. In fact, this point is seen as such a positive that many college graduates include the percentage of college expenses they paid on their resume. It’s a way for them to show potential employers that they are adults and are ready for the challenges of the real world because they have experienced the real world of paying for college.

Another point to consider is whether the parents have the means to fund the college education. Many parents, even those who have diligently saved, have seen their incomes cut and their investments deteriorate. Unfortunately, they may no longer be able to pay for the entire experience. If their child wants a college degree, there may be no other choice but for the student to participate financially.

Many financial advisors advocate that parents be sure to prepare for their retirement first before they use all their excess funds to pay for college – better for the students to have school loans than have to take care of their parents financially after retirement.

Parents Footing the Bill
Many people say parents should pay the entire bill for college so that students can focus on studies and do their best with their academic endeavors. Carrying a full load of college classes is, in some ways, a full-time job in itself. For every hour of classroom time, students may need to spend one to two hours outside of class. So a 15-hour class schedule could easily translate into 40 hours of class and study time.

Others believe that a student’s stress level is greatly increased when they have to worry about their finances in addition to classes. They may also miss out on college activities, which some say is a major part of the college experience.

Another consideration is the parent’s income and asset levels. Many financial aid applications require this information. Students may not be able to receive substantial aid because the parents are deemed to be in a position to contribute a large percentage of the costs.

Finally, students who pay for their own college experience will likely enter adulthood with a large amount of debt. They will have to pay back thousands of dollars over 15 to 20 years, possibly delaying their ability to purchase or rent a home. This may result in their moving back in with their parents after college so that they have the funds necessary to repay their school loans.

Rising Cost of Tuition
At our firm, we have many young couples beginning their families.  My advice to them is to start saving for college early and often, possibly by starting 529 plans such as College Savings Iowa.  According to the US Department of Education, since 1978 the cost of attending a public or private college has tripled, with tuition increases rising at an average of double the general inflation rate.  So, who should pay for what? Well, whether the parents pay the entire bill or have the kids pay a portion of the tuition will, most likely, remain an unsolved equation due to many variables.  However, the important part is to start discussions early with your student, so everyone knows the plan and expectations. Let the savings begin!


Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Five Tips for Healthy Business Growth

Believe it or not - how you grow your business can sometimes be just as important as whether your business grows.

Business growth carries with it a certain amount of risk.  To avoid potential pitfalls, consider the following tips for successful growth.

1. Find your key focus.  It is important to select and stick to a key focus, particularly in times of an uncertain or slow economy.  Do what your company is good at.  Produce the products that can be delivered consistently and successfully.  It’s harder to add new services or venture too far outside your scope during a recession.
   
2. Don’t become overconfident.  Like a favored team that lets down its guard and loses to an underdog, an attitude of overconfidence can bring about business loss.  Owners who have had success in the past must guard against gaining a sense of omnipotence.  Overconfidence is unrealistic and can spell disaster.
   
3. Don’t define your business by your products or services.  Virtually any product or service can become obsolete over time.  Don’t define your business  by your product, but rather from your customer’s needs that you are able to satisfy.
   
4. Make your marketing message consistent.  If you want to grow your company, marketing is essential.  How you market is important.  A key way to grow your business is to have a consistent marketing message.  In today’s complex world, marketing messages have to be very simple, direct and constant.
   
5. Practice what you promise.  Customers will be the most intolerant of mistakes when money and time are tight.  For example, if your marketing campaign promises a certain turnaround time, you need to live up to that promise.  Otherwise, you risk reducing your customers’ satisfaction or possibly losing customers altogether.   

Practicing these few steps and being proactive can help you achieve a healthy business growth.


Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.