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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

June 2011

WHAT IS COLLEGE FINANCIAL PLANNING?

by Andrew D. Schwartz, CPA

Sending a child to college ain't cheap.  According to our friends at Strategies for College, "The average published private college cost last year was $37,390, while public, in-state tuition was $18,326...Last year only 5 schools in the nation had total fees exceeding $50,000. This year, nearly 60 schools charge that much per year! What will the increase look like next year?"

The purpose of college financial planning is to take steps to minimize the total cost of sending a child to college while also implementing a strategy to pay for that child's education. As your child approaches college age, there are four distinct areas to consider: academic positioning, budgeting and cash flow planning, maximizing available tax breaks, and FAFSA planning.

Academic Positioning:

For starters, choosing the right school for your child can save you a lot of money over your child's college career.  Todd Fothergill, Founder of Strategies For College, told me of a family he had recently helped out with the college application process.  The child was quite bright, and had applied to Cornell University.  Based on the family's financial situation, Todd knew that this family would not qualify for financial aid, and therefore, would be looking at paying $50k per year.  Todd recommended that the child also apply to Case Western University, knowing that  the child would most likely qualify for a substantial merit scholarship.  That child is now attending Case Western at an annual cost of $25k - or half of what the family would have spent to send him to Cornell.

Not choosing the correct school or major can also be a huge pitfall for families.  With an annual cost of up to $50k for a top private college or university, the cost of your child not earning an undergraduate degree in four years could mean tens of thousand of dollars in additional tuition and fees. Talk about busting your budget!

Remember, there are almost 5,000 colleges and universities competing to attract the best student body possible.  By leveraging the database developed by college planners such as Strategies for College, and undertaking some academic positioning as part of the college application process, you can learn what options exist to send your child to college without paying the full listed price.

Budgeting and Cash Flow Planning:

According to Susan Schwartz, CFP, "There are times in life to go through a budget to figure out how you're spending your money.  A few years before sending a child to college is one of those times."

The current rule of thumb states that the average family pays for college one-third from savings, one-third from current income, and one-third from loans.  That being said, it's important to come up with a plan to carry you through the four years you'll be paying for one child's education, or the whole period that you'll be paying for multiple kids to earn their degrees. 

The cash flow plan includes:

  • Understanding the cash flow currently available to use towards college each year from your current job and other income sources.

  • Determining various options that might be available to increase cash flow during this period.

  • Compiling a list of assets that are available to pay for college.

  • Figuring out how to best liquidate and utilize these assets over time.

  • Evaluating borrowing options available to parents and students .

The end result of this part of the process is a well thought out "cash flow for college" plan to guide you through the years your children are at college and beyond.  The results of this report might be downright scary, however, but at least you'll have a realistic plan in place.

Maximizing Tax-Breaks:

Besides paying discounted prices, a great way to get more for your money is by purchasing goods and services with "pre-tax dollars" versus "after-tax dollars".  Remember, because of income taxes, $100 of pre-tax dollars has the same purchasing power as approximately $166 of post-tax dollars.

Back in the old days, saving for a child's college education was much simpler.  Not only was sending a child to college more affordable, but there were also a lot fewer college savings options available.  You either socked away as much money as possible in your savings account, or, during the pre-"kiddie tax" days that ended in 1986, you might have opened an account in your child's name. 

Back in our June 2004 newsletter, we included an article titled College Savings Confusion.  We address eight different education tax breaks in this article.  Even though the article was written sever years ago, the tax breaks included in the article are still pretty much equivalent to those in place through 2012. While coordinating these tax breaks can be quite a challenge, taking full advantage of these opportunities will help you minimize the after-tax cost of sending a child to college.

FAFSA Planning:

"Every family needs to complete a FAFSA each year to be eligible for either merit aid or student loans, including a Stafford Loan available to every undergraduate college student," explains Susan Schwartz CFP.  Prior to your child's junior year, there are steps to consider that might impact the results from the FAFSA, including:

  • Moving money from UGMA/UTMA accounts into 529 plans.

  • Selling appreciated securities that have been held in the child's name.

  • If you are self-employed, deferring income or putting money back into the business to reduce the reportable net income.

Working with a college planning professional who understands the FAFSA form could help your family take steps to minimize its "expected family contribution", and therefore, qualify for additional aid.  


"STRATEGIES FOR COLLEGE" REQUEST FORM

For more information about the college planning services that Strategies for College can provide, please complete this form:

Your name
City and State
e-mail address
Phone number
Your child(ren)'s age(s)

TOP


EMPLOYMENT LAW UPDATE: U.S. DEPARTMENT OF LABOR LAUNCHES NEW TIMESHEET APP

by Attorney Robert M. Shea

On May 9, the U.S. Department of Labor (“DOL”) announced that it has launched its first application for smartphones, a timesheet “to help employees independently track the hours they work and determine the wages they are owed.”  The “app” records time worked and calculates amounts owed by employers, including overtime pay for time worked beyond 40 hours in a workweek.  The app may be downloaded from the DOL Wage and Hour Division’s home web page at www.dol.gov/whd or from the iTunes store.

 

This launch reflects DOL’s increasing concern that the widespread use of iPhones, Blackberries and other smartphone devices has resulted in many employees working outside regular business hours without receiving legally required compensation.  This new technology is significant, according to DOL, because “instead of relying on their employers’ records, workers now can keep their own records.”  DOL states further that “[t]his information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.” 

 

Indeed, in addition to recording working time and calculating wages owed, the app includes a prominent “contact us” button, with links that allow users to easily call or send an email to the DOL’s Wage & Hour Division.

 

Only time will tell whether the app becomes a serious DOL enforcement tool or turns out to be more of a public relations move by DOL to draw attention to the issue of unrecorded and unpaid work time.  In any event, it is clear now that work time recording practices are coming under increased scrutiny in the age of smartphones and remote access.  Employers should review their existing practices to ensure that they are recording all work time for non-exempt employees in a manner that is accurate and legally compliant.

 
Robert M. Shea
Partner | Hinckley, Allen & Snyder LLP
28 State Street | Boston, MA 02109-1775
p 617.378.4364 | f 617.378.4365
 
Bob’s practice is focused in the areas of litigation and labor & employment. For over 25 years he has worked with clients developing best practices, drafting and negotiating employment agreements and separation agreements, and has advised clients on discipline and discharge, harassment, wage-hour compliance, disability, privacy, non-competition, and reduction-in-force matters. Bob also conducts workplace training, including anti-harassment training, and employment law audits. He represents clients before federal and state courts and administrative agencies, including the Massachusetts Commission Against Discrimination, Equal Employment Opportunity Commission, Massachusetts Attorney General’s Office, U.S. Department of Labor; OSHA and National Labor Relations Board. Bob serves as an arbitrator and mediator for clients to resolve employment contract disputes and statutory claims.

 TOP


BEST SMALL BUSINESS ACCOUNTING SOFTWARE: A LEADING SMALL BUSINESS ACCOUNTANT EXAMINES QUICKBOOKS

by Dawn Fotopulos on May 19, 2011

The best small business accounting software for you really depends a lot on what kind of business you’re running.  QuickBooks has long been the accounting software king, but it may be hard to decide whether to use QuickBooks Online or the desktop version.  To help you settle this, we’re sharing an accountant’s inside view on the best small business accounting software.

Andrew Schwartz, CPA, certainly knows a thing or two about accounting (to say the least).  A product of one of the best business schools in the world, the Wharton School at the University of Pennsylvania, he specializes in small business accounting.  He has helped his many clients choose the best small business accounting software for them.  Here’s his take on QuickBooks: Online vs. “Offline:”

“If you are looking to collaborate with multiple people on the accounting and bookkeeping functions for a business, the online version of QuickBooks is a great way to go. All you need is Internet access to be able to work on this web-based application.  Plus, as part of the process of setting up new users, you can limit the information that each user can access and/or manipulate.

When my wife and I took over as co-Treasurers of our kids’ elementary school PTO, we moved the bookkeeping to the online version of QuickBooks, since multiple people needed to have access to this data.

When it comes to pure performance, however, the non-online version is superior.

Based on my experience as a CPA working closely with more than 100 small business clients who use QuickBooks, the desktop version has much more utility.  One huge advantage is that you can open multiple windows within the desktop version, but can only have one window open with the online version.  It’s also quicker and easier to move around the program on the desktop version.  I find the reporting options to be more user friendly on this version as well.

Bottom line: I generally don’t recommend the online version to businesses that will only have one person handle all of their bookkeeping functions.  Instead, my CPA firm takes advantage of an option available in the Accountant’s version of QuickBooks that lets me or my staff access our clients’ QuickBooks files remotely via WebEx.”

Thanks, Andrew, for this helpful review!  We’re sure it is valuable to many small business owners deciding which version of QuickBooks to use. 

Christopher B. Spellman for BestSmallBizHelp.com contributed to this report.

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TAX AND FINANCIAL PLANNING CALENDAR FOR JUNE 2011

Month

Income Taxes

Saving and Investing

 

 

 

June

  • 2nd quarter estimates due 6/15/11
  • Income tax returns for Ex-Patriots due 6/15/11
  • FBAR filing is due 6/30/11 for individuals and businesses with foreign accounts worth more than $10k at any point during 2010.

 

  • Determine if you are on track to meet the savings and debt reduction goals you set back in January
  • See if you have adequate Disability Insurance in place.

 TOP


2010 & 2011 TAX FACTS

  • For 2010, the standard deduction for a single individual is $5,700 and for a married couple is $11,400. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2010, the personal exemption is $3,650. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2010 and 2011.
  • The standard mileage rate is $.51 per business mile as of January 1, 2011, up from $.50 per mile for 2010.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2010 and 2011.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,000 for 2011.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2012 to make your 2011 IRA contributions. 

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This Month's Topics

What Is College Financial Planning?

Employment Law Update: U.S. Department Of Labor Launches New Timesheet App

Best Small Business Accounting Software: A Leading Small Business Accountant Examines Quickbooks

The FICA Refund for Medical Residents 

2010 & 2011 Tax Facts

Tax and Financial Planning Calendar for June 2011

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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