|
An index and links to our previous months' newsletters can be found
at oldnews.html
Interact with our CPAs every day at the MDTAXES
Message Board, or the first Wednesday every month, at
9 pm Eastern Time, during our Live
Tax Chat
NEW AND IMPROVED TAX-ADVANTAGED WAYS TO SAVE
FOR A CHILD'S EDUCATION
If you have young children, you have probably
already tried to get a sense of how much it will cost you to send
your kids to college. When putting together a strategy for
saving for your child's education, following these three steps will
help you reach your goal:
-
Start saving for your child's college
education as soon as possible, even if you can only afford to put
away a small amount of money each month.
-
Set aside a certain amount of money on a
monthly basis. Otherwise, it's unlikely you'll have enough
money saved when it's time to pay your child's college education.
-
Segregate the money earmarked for college from
your other savings accounts. Consider contributing to
either an Education Savings Account or a 529 Plan, since these
accounts grow tax-free.
EDUCATION SAVINGS ACCOUNTS
Under the current rules, you can contribute up to
$2,000 per child per year into an Education Savings Account (ESA).
Amounts contributed grow tax-free, as long as any money withdrawn
from the ESA is used to pay for qualified post-secondary education
expenses, or for private elementary school and high school tuition as well.
Income Limitation: Unfortunately,
single taxpayers whose adjusted gross income (AGI) exceeds $110,000
and married couples whose AGI exceeds $220,000 aren't eligible to
contribute to an ESA. Plus, allowable contributions are limited
for single taxpayers whose AGI exceeds $95,000 and for married
couples whose AGI exceeds $190,000.
Planning Opportunity: Amounts
contributed into an ESA don't need to be made by the child's
parents. If your income exceeds the threshold indicated above,
ask somebody else, such as a grandparent, sibling, aunt or uncle, or
friend, to contribute $2,000 into an ESA on behalf of each of your children.
Beware: Before investing money into
an ESA, however, try to figure out how your financial aid package
might be impacted.
THE NEW AND IMPROVED 529 COLLEGE SAVINGS PLAN
Recently, 529 Plans got better. Below is a
summary of the current rules for 529 Plans:
-
Individuals can contribute up to $55,000 per
child into a 529 Plan in a single year. If you contribute $55,000 in
one year, however, you need to wait at least five years before making
additional contributions to the plan. And if you contribute
more than $11,000 in any one year, make sure to file a gift tax
return (Form 709) with the IRS. (Married couples can contribute
up to $110,000 per child into a 529 Plan in a single year.)
-
The money invested grows tax-free, as long as any
distributions from the 529 account are used for qualified higher
education expenses. (Starting in 2011, the money withdrawn from
a 529 Account may be taxable once again.)
-
Each state designated one financial institution
to administer their plan. That means that you can open 529
accounts with any of the large financial institutions. You can
contribute to any state's program, regardless of where you live or
where you child ends up attending college.
-
Some states allow for a tax deduction if you
contribute money into the 529 Plan they sponsor. For example,
if you pay taxes to New York State, up to $10,000 per year ($5,000 if
you're single) contributed into New York's College Savings Program is
tax deductible on your New York return.
What's the downside to 529 Plans? First
off, the money you saved in the 529 Plan might reduce the financial
aid you'll be eligible to receive. Plus, you have no control
over how the money in your child's 529 plan is invested. Before
investing in any state's program, make sure to determine whether the
financial institution will invest your child's college money as you
see fit.
MDTAXES IN THE NEWS
It was a busy month for our editor, Andrew Schwartz, CPA. He
was interviewed by the Wall Street Journal on an article on taxes for
newlyweds that appeared in the Personal Finance section on June 27,
2002. Andrew was also interviewed by the American Medical News
on financing options for physicians in practice that appeared on
their site, AMEDNEWS.COM, on June 24, 2002, and also was included in
their print journal that was sent to AMA members.
TAX AND FINANCIAL PLANNING
CALENDAR FOR JULY, 2002
|
Month |
Income Taxes |
Saving and Investing |
|
July |
-
If you changed jobs, give us a call to discuss filling
out new W-4 Forms
-
Send us the requested information for us to work
through your 2002 income tax projection |
-
Update your monthly cash flow budget
-
If your Keogh accounts are worth more than $100,000,
Form 5500-EZ due by 7/31/02 |
NEED SOME HELP WITH YOUR TAX PLANNING?
Check out our Directory of
Affiliated Offices to find a CPA near you who specializes in the
tax planning and preparation for young health care professionals.
|
THE YEAR IS MORE THAN HALF OVER.
If you're married, and you and your spouse are
ready for some basic financial planning, check out
NewlywedFinances.com.
(Brought to You By Your Friends at MDTAXES.COM)
|
2000
& 2001
TAX FACTS
-
For 2001, the standard deduction for a single individual is $4,550
and for a married couple is $7,600. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses. For 2002, the standard deduction has increased
to $4,700 for single individuals and to $7,850 for married couples.
- For 2001, the personal exemption is $2,900. Individuals
will claim a personal deduction for themselves, their spouse, and
their dependents. For 2002, the personal exemption has
increased to $3,000.
- The maximum earnings subject to social security taxes
has been increased to $84,900 in 2002 from $80,400 in 2001.
- The standard mileage rate has been increased to
$.365 per mile in 2002 from $.345 per mile during 2001.
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan has been increased to $11,000 for 2002 from
$10,500 in 2001. And if you'll be 50 or older by December 31,
2002, you can contribute an extra $1,000 into your 401(k) or 403(b)
account this year.
Home | Monthly
Tax Newsletter | TAX FAQS | Retirement
Savings Calculator
Financial
APGAR Test | Income Tax Services | Offices
| Search Our Site
The MDTAXES Network
(800) 471-0045 ~ fax (800) 547-3366
E-mail us at: cpa@mdtaxes.com
|
