Gifting Tuition and Medical Expenses to Lower Your Estate Taxes

Photo courtesy of CollegeDegrees360

Photo courtesy of CollegeDegrees360

One of the most common and popular ways to decrease your estate and avoid estate taxes when you die, is gifting. Each year you can gift up to $14,000 to your child, grandchild or other persons without paying gift taxes. This gift is not taxable to the recipient but it is also not tax deductible to the giver. Each spouse can give $14,000 which doubles the exclusion.

Paying a donee’s tuition or medical costs directly is another way to lower your estate. If you pay your child or grandchild’s higher education tuition directly to the college or university, it doesn’t count against the $14,000 gift exclusion. So, you can gift $14,000 and pay the tuition without paying gift taxes. You can donate to a 529 college savings plan and contribute $70,000 ($140,000 for married couples) without paying gift tax, but it may limit what you can give for the next 4 years.

Paying medical expenses directly to the doctor or medical facility on behave of a child or grandchild can also be gifted on top of the $14,000 without gift tax consequences. Gifting is a great way to reduce future estate taxes as well as avoiding the tax on future appreciation of the gift. As always consult your tax advisor and/or estate planner to see how gifting will benefit your personal situation.

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No Health Insurance?

piggy bank, stethoscope, and stack of money

Image provided by 401(k)

The Affordable Care Act requires you and each member of your family to either have basic health insurance coverage, qualify for an exemption, or make an individual shared responsibility payment. So, if you do not have health insurance (whether you choose not to or can’t afford it) you must pay a fee. Many people who have not been able to get health insurance are confused and even frightened as to what will happen. Here is what you can expect.

First there is a minimum (or threshold) amount you have to earn each year before you are required to pay the shared responsibility payment. For a single person it is $10,150, for married couples it is $20,300 and for head of household filers it is $13,050. If you make over this amount you will pay 1% of your earnings over the minimum earnings. The formula is:

Your Income – threshold amount X 1% = Shared Responsibility Payment

For example, if a single person earns $40,000 per year the payment would be $298.50 ($40,000 – $10,150 X 1%) A married couple earning $70,000 per year would pay $497 ($70,000 – $20,300 X 1%).

There are a few other factors that can figure into the equation. These include the number of dependents you have, if you had health insurance part of the year, if you are over 65, or the fact that the payment cannot exceed the cost of a bronze-level exchange plan.

An interesting note is that the IRS has limited remedies to collect the tax. It cannot use liens or levies to collect the tax, so it can only offset tax refunds. Also, the IRS cannot charge interest on the unpaid balance.

If you are weighing the options between obtaining health insurance coverage or paying the shared responsibility payment, contact your tax advisor who can tell you what will happen in your particular situation.

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Watch out for IRS Scams!

Photo courtesy of Julian Carvajal

Recently more than 20,000 people have been targeted by scammers claiming to be IRS agents in one of the largest phone scams the IRS has ever seen.  Thousands have lost a total of more than $1 million.  This is how it works:

What they are doing?

A fake IRS agent calls a taxpayer and claims the taxpayer owes taxes.  They demand payment in the form of a prepaid debit card or wire transfer.  Those who refuse are then threatened with arrest, deportation, loss of a business license or loss of a driver’s license.

Who are they targeting?

The scam started by targeting primarily immigrants but has spread to all taxpayers.  The scam has been effective because the fake agents mask their caller ID, making it look like the call is coming from the IRS.  In some cases, the fake agents even know the last 4 digits of Social Security numbers and follow up with official-looking emails.

How do you  protect yourself?

All you have to know is that the IRS always contacts taxpayers by mail first.  They never demand payment by debit card or wire transfer.  They also do not contact taxpayers via email.  If you get a call or an email, it’s a scam, and you should contact the IRS immediately.  The IRS has a special unit that investigates these complaints.  You can contact the IRS by calling 1-800-829-1040 or by email at

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Deducting Interest on Your Taxes

This week we would like to talk about the Interest or Interest Paid deduction, which is recorded on the Schedule A.  The most common interest is home mortgage interest.  A home mortgage loan is secured by your main home or a second home. It includes the first and second mortgage on the purchase of the home, a home equity line of credit, and the loan from a refinance. A home can include a house, condominium, co-operative, a mobile home, house boat, or similar property.  To be considered a home it must include sleeping space, a toilet and cooking facilities.  So, if you have a boat and you live in it 3 months out of the year and it has a bed, a galley, and a port-a-potty, you can deduct the interest on the loan as a second home.  Keep in mind the loan has to be to purchase, build, or improve your home.  If you take equity out of your home to buy a car, only the percent of interest that was for your home can be deducted.  A travel trailer and RV can also be considered a second home.

Sometimes people buy a home and the previous owner finances the purchase.  This means that instead of going to a bank and getting a mortgage loan the buyer makes payments to the old owner.  In this current economy it is becoming more common.  A mortgage lender is required to report the interest paid by the homeowner to the IRS, but if you have owner financed a home you can still deduct the interest.  To do this you must put the name, address, and social security number of the person you are paying on your Schedule A.  If you don’t, the IRS can disallow the interest deduction.

One other thing considered interest paid is points paid to the lender.  When you buy a home you are often charged points that show up on the settlement statement.  Points are fees paid to the lender to borrow money.  They are tax deductible over the life of the loan.  That means if you have a 30-year mortgage you can deduct 1/30 of the amount charged for points every year.  It is almost pointless.  But of course every little deduction can help.  If you get a loan to make improvements to your home and you are charged points on the loan, you may be able to deduct the points in the year you make the improvements.

The last type of interest that is deductible is investment interest.  Investment interest is interest paid on money you borrowed for property that is held for investment.  It doesn’t count for passive investment activities or for activities that generate tax-free income.  Generally, if you have paid investment interest it has been paid through an investment company such as Merrill Lynch or Smith Barney and will be reported on your annual statement.  If you have borrowed money for investment purposes be sure and tell your tax advisor so they can determine if it is a deduction.

There are a few more things to consider when you are deducting your insurance.  Visit to learn more!


Post Tax Season Tips

Hello everyone!  It’s been a while since our last post.  Tax season took us over!  But we are back, and now that tax season is past it’s peak, we wanted to give you a few quick tips to get you ready for next year.  When it comes to taxes, it is always best to start on the right foot.  So here are a few things we suggest to start doing now, to be prepared for next year.

  1. Set up a good file system and/or bookkeeping system and record your income and expenses on a monthly basis.
  2. Meet with your financial planner to strategize your retirement plan and investments
  3. Review your finances and businesses on a quarterly basis so you can see where your money is going and if you should be making adjustments to your spending.  If you have a good bookkeeping system in place this will be easy.
  4. Keep a mileage log in each car.  There are deductions for mileage in many areas: business, employee expense, medical and charitable.
  5. Review what kinds of items are tax deductible so you know what to keep track of during the year.

We hope this helps you get ready for next year!  Let us know if you have any question or need any help! Also check out our website for more information