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Two Tax Credits to Help Pay Higher Education Costs

Wednesday, January 19th, 2011

From the IRS:

There are two federal tax credits available to help you offset the costs of higher education for yourself or your dependents.  These are the American Opportunity Credit and the Lifetime Learning Credit.

To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot file for the credit.

For each student, you can choose to claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter’s tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.

However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.

Here are some key facts the IRS wants you to know about these valuable education credits:

1. The American Opportunity Credit

  • The credit can be up to $2,500 per eligible student.
  • It is available for the first four years of post-secondary education.
  • Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
  • The student must be pursuing an undergraduate degree or other recognized educational credential.
  • The student must be enrolled at least half time for at least one academic period.
  • Qualified expenses include tuition and fees, coursed related books supplies and equipment.
  • The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.

2. Lifetime Learning Credit

  • The credit can be up to $2,000 per eligible student.
  • It is available for all years of postsecondary education and for courses to acquire or improve job skills.
  • The maximum credited is limited to the amount of tax you must pay on your return.
  • The student does not need to be pursuing a degree or other recognized education credential.
  • Qualified expenses include tuition and fees, course related books, supplies and equipment.
  • The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.

You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

For more information about these credits see IRS Publication 970, Tax Benefits for Education

Eight Facts About Filing Status

Thursday, January 13th, 2011

More good stuff from the IRS:

The first step to filing your federal income tax return is to determine which filing status to use. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child.

Here are eight facts about the five filing status options the IRS wants you to know so that you can choose the best option for your situation.

  1. Your marital status on the last day of the year determines your marital status for the entire year.
  2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
  3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
  4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
  5. If your spouse died during the year and you did not remarry during 2010, usually you may still file a joint return with that spouse for the year of death.
  6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
  7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
  8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2008 or 2009, you have a dependent child and you meet certain other conditions.

There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

What you need to do about Health Care Reform right now

Friday, November 19th, 2010

Love it or hate it, health care “reform” is upon us.  Most of what was legislated will be put in place over the course of a few years but some of the new rules are effective as early as January 1, 2011.  A good portion of these are coverage changes that your insurance provider will manage.  Just so you are aware of what next year’s group health insurance plan will look like, these are:

  • Expanded dependent coverage
  • Children with pre-existing conditions cannot be excluded from coverage, and
  • Regulation of limitations on certain benefits.

From the small business owner’s point of view it is generally business as usual, including the huge annual rate hikes, but there is some good news in the way of a new credit.  If your business provides health insurance coverage to its employees you may qualify for a tax credit.

Employers who have fewer than 25 employees and average annual wages of less than $50,000, who also pay half or more of the insurance premiums will qualify for a tax credit for up to 35% of 2010 premiums, increasing to 50% by 2014.  The credit will be calculated on form 8941 Credit for Small Employer Health Insurance Premiums.  Not-for-profit employers will be eligible for a 25% credit, increasing to 35% by 2014.

Another Health Care Reform change that you and your employees will notice is that over-the-counter medicines will not be eligible for reimbursement from a flex spending cafeteria plan.  Beginning in 2011, only prescription drugs will qualify.

Your 2011 W-2 will look different also.  From 2011 forward, your W-2 will include the amount of health insurance paid on your behalf during the year.  Does this signal an indication that the government will eventually include that amount as taxable income?  It sure seems that way!

The 3 Waves of Burdensome Taxation

Friday, October 8th, 2010

This was sent to me by a friend.  While some of it may be guesstimation, the direction seems to be generally correct.  A lot of these provisions are still being reviewed by Congress at this time so much may change:

This is what the Obama administration has done to you, don’t stick your head in the sand if you voted for him, read.

January 1, 2011, the largest tax hikes in the history of America will take effect.

They will hit families and small businesses in three great waves.

On January 1, 2011, here’s what happens… (read it to the end, so you see all three waves)…

First Wave:

Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.

These will all expire on January 1, 2011.

Personal income tax rates will rise.

The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).

The lowest rate will rise from 10 to 15 percent.

All the rates in between will also rise.

Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.

The full list of marginal rate hikes is below:

  • The 10% bracket rises to an expanded 15%
  • The 25% bracket rises to 28%
  • The 28% bracket rises to 31%
  • The 33% bracket rises to 36%
  • The 35% bracket rises to 39.6%

Higher taxes on marriage and family.

The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income.

The child tax credit will be cut in half from $1000 to $500 per child.

The standard deduction will no longer be doubled for married couples relative to the single level.

The dependent care and adoption tax credits will be cut.

The return of the Death Tax.

This year only, there is no death tax.  (It’s a quirk!) For those dying on or after January 1, 2011, there is a 55 percent top death tax rate on estates over $1 million.  A person leaving behind two homes, a business, a retirement account, could easily pass along a death tax bill to their loved ones.  Think of the farmers who don’t make much money, but their land, which they purchased years ago with after-tax dollars, is now worth a lot of money.  Their children will have to sell the farm, which may be their livelihood, just to pay the estate tax if they don’t have the cash sitting around to pay the tax.  Think about your own family’s assets.  Maybe your family owns real estate, or a business that doesn’t make much money, but the building and equipment are worth $1 million.  Upon their death, you can inherit the $1 million business tax free, but if they own a home, stock, cash worth $500K on top of the $1 million business, then you will owe the government $275,000 cash!  That’s 55% of the value of the assets over $1 million! Do you have that kind of cash sitting around waiting to pay the estate tax?

Higher tax rates on savers and investors.

The capital gains tax will rise from 15 percent this year to 20 percent in 2011.

The dividends tax will rise from 15 percent this year to 39.6 percent in 2011.

These rates will rise another 3.8 percent in 2013.

Second Wave:


There are over twenty new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011.  They include:

The “Medicine Cabinet Tax”

Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax”

This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.

There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.

Tuition rates at one leading school that teaches special needs children in Washington , D.C. ( National Child Research Center ) can easily exceed $14,000 per year.

Under tax rules, FSA dollars cannot be used to pay for this type of special needs education.

The HSA (Health Savings Account) Withdrawal Tax Hike.

This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Third Wave:

The Alternative Minimum Tax (AMT) and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise - the AMT won’t be held harmless, and many tax relief provisions will have expired.

The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year.

According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families-rising from 4 million last year to 28.5 million.  These families will have to calculate their tax burdens twice, and pay taxes at the higher level.  The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear.

Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000.

This will be cut all the way down to $25,000.  Larger businesses can currently expense half of their purchases of equipment.

In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses.

There are literally scores of tax hikes on business that will take place.  The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced.

The deduction for tuition and fees will not be available.

Tax credits for education will be limited.

Teachers will no longer be able to deduct classroom expenses.

Coverdell Education Savings Accounts will be cut.

Employer-provided educational assistance is curtailed.

The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed.

Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA.

This contribution also counts toward an annual “required minimum distribution.”  This ability will no longer be there.

And worse yet?

Now, your insurance will be INCOME on your W2’s!

One of the surprises we’ll find come next year, is what follows - - a little “surprise” that 99% of us had no idea was included in the “new and improved” healthcare legislation . . . the dupes, er, dopes, who backed this administration will be astonished!

Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that’s a private concern or governmental body of some sort.

If you’re retired?  So what… your gross will go up by the amount of insurance you get.

You will be required to pay taxes on a large sum of money that you have never seen.  Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt.  That’s what you’ll pay next year.

For many, it also puts you into a new higher bracket so it’s even worse.

This is how the government is going to buy insurance for the15% that don’t have insurance and it’s only part of the tax increases.

Not believing this???  Here is a research of the summaries…..

as modified by sec. 10901) Sec.9002  ”requires employers
to include in the W-2 form of each employee the aggregate cost of applicable employer sponsored group health coverage that is excludable from the employees gross income.”

- Joan Pryde is the senior tax editor for the Kiplinger letters.
- Go to Kiplingers and read about 13 tax changes that could affect you.  Number 3 is what is above.

I’m (almost, well not quite) famous!

Wednesday, March 24th, 2010

Here is the script of a recent interview of Rana Chudnofsky by Exercise TV:

Rush, Rush, Rush, the deadline of April 15th Tax Season is here again and along with Spring it’s the time to slow down and start planning accordingly.

I know you all of you lead busy, active lives, but in everyone’s life No matter how active we are there are those sedentary things in life that seem like bigger mountains and are sometimes more stressful than anything physical we might have to overcome.

Hi there I’m Rana Chudnofsky helping you get through to Tax Day with Exercise TV

Tax Season is about reorganizing, throwing away and making room. But why do so many of us have such negative feelings/emotions about sitting down and doing our taxes if it really does help us get organized and clean up for Spring time? In the next few minutes I’m going to give you some quick Tips to help make this tax season a better experience.

Last week, my accountant Nick said to me that he feels most people fall into two categories. First, there is the disorganized type. scrambling to Locate records, 1099 forms, bank statements, tax bills, real estate taxes, excise taxes, business travel, have I been logging my car miles for the last 12 months?? And what about the thin-mint Girl Scout cookies on the kitchen table…did I tell the accountant that I made a donation to the Girl Scouts this year? For me, leaving my stuff at the accountant’s office is the same relief as losing ten pounds.

..and on the other spectrum is the extremely organized type who Actually seems to enjoy adding up their Dummy Tax Forms to see how close they come to their accountant’s calculations. They have an idea of their deductions, know where all the receipts are and have a paper trail of all stock sold between Jan-Dec. Not surprising, the reality is that most of us fall right in the middle of these two examples.

He also points out that only 10% of his clients actually enjoy doing their taxes. So for the 90% and I would include myself in this category, tax time can be quite overwhelming and stressful and this brief video is made for you.

Recently, I read in the NY times an article titled “What you don’t know makes you nervous” Daniel Gilbert a Professor of Psychology at Harvard mentions that people feel worse when something bad MIGHT occur than when something BAD does occur. Most of us aren’t losing sleep and sucking down Margaritas because the Dow is going to fall another thousand points. Instead, we get tense because we DON’T’ KNOW whether it will fall or not and humans find this uncertainty more painful than what we ARE certain about.

I believe it’s often this uncertainty that leads us to procrastinate. I was starting to prepare a whole section for you all  on procrastination but couldn’t get myself together last night and thought ahhh I’ll do it later

If we simply just called our accountant or looked on the IRS website, and found out what we needed to do, it wouldn’t be so bad. But many of us don’t make that phone call until the last minute. The fear of the unknown makes us procrastinate to the point that this idea of getting our taxes done is just overwhelming and we keep putting it off until tomorrow. Anything else that grabs our attention becomes more interesting and more important…like organizing your sock drawer or doing some laundry?

So instead of wasting time, feeling pressure and putting off the inevitable, Here are some tips for you or you and your partner during this tax season -

1.      Conversation with a Professional - As I mentioned before, FIRST, seek out professional advice, a CPA.  Then create and write down clear goals .listing exactly what needs to be done before April 15th. Make THAT LIST. Once you know that information, you may feel some relief.

2.    The Oreo Cookie Approach - Do something that feels good and then do something you dislike doing and then give yourself a reward!  For example, start out organizing your 12 month statements. Not so bad. Then go through all your contributions, locating all the donation letters you can’t find. Then finish with a walk outside, telephone call to a friend or drink slowly a good glass of cool water…good hydration will help to dilute the stress hormones… Cool water is always better to fight stress. Cool water has a parasympathetic effect to fight the stress response…but making sure to drink slowly.  Mild dehydration can cause mental fatigue. Hydration is a way to re-energize the brain as well as fighting stress. The brain needs water. So trying to avoid here as your reward coffee or some soda with caffeine.

3.    The Two Hour Commitment - I think most of us.. we think we need to spend the whole day on our taxes. And we wait and wait, don’t do anything and the day disappears. The problem is - who wants to spend an entire day on taxes!  How about setting a two hour timer at your desk. How many items from my ‘goal list’ can I accomplish in two hours -  three items, four items, ten? You’ll be pleasantly surprised.

4.    Create a Working Space - If daily life causes you stress with family and work etc. (and who doesn’t have stress) then try to reduce them from creeping into your work space. Quiet all the technology devices you don’t need to accomplish your goal. Now gather everything you do need.  If you work well with pencils and highlighters have them on your desk and ready to go. Any distraction to run to CVS for some last minute items will put everything ‘on hold’. And if you have children maybe trading time with a friend so that you can do your taxes for a few hours in quiet and next week you’ll watch their children so that they can do their taxes. Place everything that has to do with your taxes in one neat area and try not to spread papers all over your house or apartment. Creating a space that is soft on the eye will help you stay in that space longer.  And lastly, how about some soft music in the background, or lighting a nice organic non-toxic candle.

With these 4 steps, you are now ready to visualize the path that Will help you stay on your goal…which is FINISHING YOUR TAXES.

Allow your body to relax. This can be done lying down and placing your Head on a soft pillow or in a seated position on a chair or on the floor. You can begin to close your eyes or stare at a spot in front of you. Let’s begin by taking a few deep breaths. Breathing a sense of peace and relaxation and letting go of any tension from your body with an exhale. Allowing clean air to come in and washing away all fears with your exhale. Take three easy deep breaths as you relax your body.

Imagine seeing yourself at your work space. You’ve taken the time to create both a workable and peaceful spot for yourself. All papers related to your taxes are in one area. You say to yourself - ‘one task at a time, one paper at a time..   Know that you can take small steps to achieve a greater goal.  I can do it. You see yourself picking up  the first group of papers and crossing off the first item that needs to be completed. Feel a sense of accomplishment and notice that your body becomes lighter - like a hot air balloon moving through the sky.

You see yourself continuing in this way, one step at a time, going through and accomplishing everything on your ‘ Goal List’. You are flowing and at ease with the process of working through your taxes. sitting in a comfortable position while working, being present your body, relaxing, and trusting yourself with doing what needs to be done in the best possible way. You know your body and when it’s time to take a break. Say to yourself without judgment, no big deal, I’ll get back to work later. Notice how you feel about yourself, perhaps some relief, lightness in the shoulder and the body.

Now visualize your reward as another item on your ‘Goal List’ disappears. Is it mountain climbing, a day at the beach watching the waves or curling up with a good book on a comfy sofa. Stay there for a few minutes…then slowly become aware of your surroundings…

So for next year remembering these tips and working now to create a System to put into place because tax time will roll around again next year, and You can  prevent stress by confronting it head on.

You now have your steps to succeed, there is no need to rush-rush-rush.

You’re ready to get started!


Monday, February 1st, 2010

I don’t know what it is about this blog but I seem to attract spam comment posts like flies to…well…you know.

Just so you know, Mr. or Mrs. Spammer, your comments are getting logged as spam and will not under any circumstances show up on this blog, so don’t waste your time.


Tuesday, January 26th, 2010

When I opened the door to my office yesterday morning the first thing I noticed was flowers.  Nancy, as she normally does, opened the office and on her way in she picked up some flowers for the office: a small plant for the reception area, one for Kerri’s desk and a small bouquet of red tulips for the conference room.  While this doesn’t sound like much it has a big impact on how the office looks and feels.  “Pride of ownership” maybe?  Esprit de corps?  Whatever you want to call it, it’s a sign that people are happy to work here.

When I opened my office at the end of July 1998 I didn’t want my suite to look like an “accountant’s” office.  You know…beige walls with stained wood trim and doors, brown carpeting, heavy and dark oak furniture, dark red leather bankers’ chairs.  Instead I chose bright colors, modern furniture and made a conscious effort to show that there is life here and we have a goal beyond the tired and overworked stale CPA image.  Still, with just me in the office little things like flowers went by the wayside as my attention was drawn elsewhere.  No longer!  I have been making big changes around here both with infrastructure and staff and these efforts are starting to gain traction.  Like spring flowers on a dreary winter day.

Saturday #2 and all is well

Saturday, January 23rd, 2010

This was sort of a crazy week.  There is lots of “new” around here; new copier, new staff, newly filled offices, new organization, new greener philosophy, etc.  With all that newness comes conflict and misunderstanding since a few of the priorities bump into each other.  The ability to work through these things and land on your feet is a true talent and the office team was able to do just that.  Good show!

SO the big issue was tax organizers. Normally these are mailed to our clients about two weeks ago, but production delays (newness!) held things up.  On the other hand, 2009 1099 forms were completed this week and are already in the mail, those being about a week ahead of last year’s time line.  The upside of all this is that next year we are going to have all of this experience behind us and can avoid delays and move things through in a more efficient manner.  Two steps back for five forward!

The challenge now is to look for new clients to fit our recently uprated capacity.  That requires time at networking events, calling clients, being out and about.  It’s hard (emotionally) to fit that in with young kids at home that want their Daddies and Mommies though.  No pain, no gain is easy to live by at the gym, but when little kids are only little for a short time, it sure is difficult to pull away and hang out with cold eyed adults when I could be cuddling with the little ones.

All in all, this should be an interesting  tax season.  In the past I have done most of this on my own with a trusty assistant at the front desk - I am used to heavy lifting so at the very least I can do that again and pump in the full weeks of long hours, but with luck, skill and fingers crossed I’m hoping this season ends as it started with everyone working and learning and growing.

January 15th

Friday, January 15th, 2010

Today is a funny day, a pivot point between my personal life and my work life.  What’s the big deal with today?  January 15th is the due date for Q4 estimated tax payments.  While that’s not a major event on many calendars, for me it signals the true end of the holiday season and the beginning of tax season.

Right around today my office is sending out tax organizers to individual clients and to do lists for our business clients.  I may or may not have to work this Saturday depending on how much of a mess my office is and what is collecting dust on my “must do” shelf.  I’m still undecided about this Saturday but a couple of hours behind my desk wouldn’t hurt.

What does hurt is the reaction I receive when the kids see me heading off to work on what’s otherwise a “fun” day.  Just the other day when I came home a little later than normal my son asked, “Daddy, is it tax season already?”.  Little dude broke my heart.  He is 5 and already knows that tax season means he and his sister are children of a single parent until April 15th.

This year should be different though.  I’ve hired a CPA to help with production and I’ve replaced my admin with a more focused person who is very organized and interested in making changes around here.  I do anticipate a difficulty delegating work to them.  I haven’t had to work with a team in 13 years.


Friday, December 18th, 2009

Rule #1 about working for yourself: DO NOT HIRE YOUR IMMEDIATE FAMILY!  I preach this all the time but ignored my own advice.  Suffice it to say I am paying for that mistake now.  Fun for the Holidays!

My office is coming together nicely.  Out with the old and in with the new…furniture, decor, people, policies and procedures, infrastructure.  My office manager and staff CPA are meshing well and all that’s left is for me to find the balance and add more business to my new found capacity.

E-Myth Revisited indeed!