Optimize Health Savings Account Contributions

by Mounica Kota | Jan 14, 2019 | Taxtips

Optimize Health Savings Account Contributions

Optimize Health Savings Account Contributions: Did you become eligible to make contributions to a Health Savings Account this year? If so, then you can make deductible contributions into that account up to its maximum amount, no matter when you became eligible. For 2018, the maximum deduction for self-only coverage is $3,450; for family coverage, it is $6,900. Due date to contribute HSA April 15th of the Next Year. (For TY – 2018 the due date is April 15, 2019).

The account has various features which are as follows:

You can set up the Health Savings Account with a qualified HSA trustee.
You should have a HDHP to qualify for the HSA.
Contributions to the HSA can be made by you, your employer, or both. If your HDHP covers only you, the maximum annual contributions to the HSA account would be limited to $3400. If your family is also covered by your health plan, the annual contribution limit goes up to $6750. Individuals above 55 years of age can contribute an additional $1000 in excess of this limit. If you or your employer’s total contributions exceed the specified limits, a penalty of 6% would be levied.
The contributions made to the HSA, by you or by your employer, are tax-free. They are deducted in the ‘adjustments to income’ section on the Income Tax Form 1040.
If your HSA earns any interest, such interest is also tax-free.

The balance in the HSA should be used only to pay qualifying medical expenses. If the HSA is used for paying non-qualifying medical expenses a penalty of 20% would be charged. This penalty, however, would not be applicable if the individual is more than 65 years old, becomes disabled or dies.

Make the Most of Higher Education Tax Credits

by Mounica Kota | Jan 8, 2019 | Taxtips

Make the Most of Higher Education Tax Credits: Both the Lifetime Learning education credit and the American Opportunity Credit allow qualified taxpayers who prepaid tuition bills in 2018 for an academic period that begins by the end of March 2019 to use the prepayments when claiming the 2018 credit. Education Tax Credits That means that if you are eligible to take the credit and you have not yet reached the 2018 maximum credit for qualified tuition and related expenses paid, you can bump up your credits by paying early for 2019 now.

Student Eligibility

A student is eligible to benefit from the American Opportunity Tax Credit system is the person has not completed their four years of schooling. The student must also have enrolled themselves for at least one semester for the financial year in consideration and must main a half time status for the course they have enrolled. Any student having a drug related offense against their name is automatically disqualified from the program.

Expenses Qualified under the program

Any fees that you pay to an educational institution that is eligible and recognized, you can claim the same for tax credits. The tax credit system is not restricted to colleges and universities alone. It is applicable to post-secondary schools also as long as these schools meet the requirements set by the United States Department of Education Financial Aid Program. As a part of the credit system, you can also claim costs spent on supplies, books and other equipment necessary as per your course curriculum.

Paying for the expenses

Fees and other expenses that you pay via funds borrowed such as a credit card of loan qualify for the tax credit. There usually aren’t any deductions from those amounts. However, there are restrictions when it comes to tuition grants, tax free scholarships, Pell grants, or other gifts and non-taxable expenses that you inherit. The credit system also doesn’t cover expenses such as room rent, boarding, food expenses, transportation or even medical insurance. One can think of these as exclusions.

Review Portfolio for Losses

by Mounica Kota | Jan 8, 2019 | Taxtips

Review Portfolio for Losses: If you have an overall loss, the loss that can be used to offset income other than capital gains is limited to $3,000 ($1,500 for married taxpayers filing separately), and any excess loss carries over to the next year. Keep in mind that losses from the sale of business assets are generally separately allowed in full in the year of sale and are not mixed with the losses from the sale of capital assets.
Assets that are sold and not held long-term, referred to as short-term capital gains, do not receive the benefit of the special rates afforded to long-term capital gains. Taxpayers achieve a better overall tax benefit if they can arrange their transactions to offset short-term capital gains with long-term capital losses.

Avoid the Minimum Required Distribution Penalties

by Mounica Kota | Jan 3, 2019 | Taxtips

Avoid the Minimum Required Distribution Penalties: Once taxpayers reach the age of 70.5, they are required to take what is known as a “required minimum distribution” from their qualified retirement plan or IRA every year. If this is the first year that this rule applies to you and you haven’t taken your money out yet, there’s no need to panic – you don’t have to do so until some time during the first quarter of next year. Penalties Of course, if you wait until 2019 to take your 2018 distribution, you’re going to end up having to take two distributions in one year: one for 2018 and one for 2019. As we all (hopefully) know, there are some basic steps investors can take to withdraw funds from a traditional IRA without incurring a 10% penalty. Let’s start with the obvious, like waiting until after 59 ½ years old to withdraw funds. Withdrawing annual allowed contributions before your taxes are due will also avoid the penalty, and the same goes for withdrawing excess contributions. If you discover that you’ve contributed more than allowed (due to income limits or error) you are free to remove the excess and any associated growth before the tax return is due for the year. Additionally, taking your required minimum distributions will keep the 10% penalty at bay. Technically this is covered by waiting to withdraw after age 59 ½ but sometimes required minimum distribution is required of a person who has inherited an IRA, regardless of age.

But beyond those well-known methods, there are more obscure ways to withdraw from your traditional IRA without getting knocked down by that painful penalty.

Take, for example, the so-called Series Of Substantially Equal Periodic Payments, better known as SOSEPP. This is the classic Section 72(t) method for withdrawing funds without penalty; essentially you agree to continue taking the same amount from your IRA for five years or until you reach age 59½, whichever is greater.