Fox Accounting & Tax Services Inc.                                    (503)246-6994   Income Tax Preparation, Payroll & Bookkeeping Services

No federal deduction is allowed for contributions to a Qualified Tuition Program account; however, qualifying distributions from the account will be tax fee.  This means that all of the growth and earnings in the account are tax free provided that the proceeds are used for qualifying education expenses of the account beneficiary.

You can subtract contributions you made to an Oregon 529 College Savings Network account during the tax year up to $4,455 on a joint tax return or up to $2,225 for all other filing statuses (single, head of household, or married filing separate). Each state has a plan or plans that they specifically sponsor.   To qualify for the subtraction the contributions must be made to the Oregon plan and not one of the plans sponsored by another state.  

The overall limitation on contributions is the amount necessary to provide for the qualified expenses of the beneficiary.  There is no AGI limitation as there is with so many other provisions of the tax code.  Contributions are considered a gift so you are subject to the gift limitation rules. Currently the maximum gift exclusion is $14,000 per year.  You can elect to make a larger contribution in a given year and account for it ratably over the next 5 years.  For example, one could contribute $70,000 to their grandchild's 529 plan in 2013 and apply the the gift tax limit for the next 5 years (5 x $14,000 = $70,000).  No other gifts or contributions could be made to that grandchild during the 5 year period without triggering gift tax issues.

Because there is no deduction for this item on the federal return, the timing of the contribution is not particularly important for federal purposes.  However, to receive a subtraction on the Oregon return, the contribution must be made by the due date of your tax return including extensions.

Oregon also has a carryforward provision.  If you make a contribution that is greater than the maximum deduction allowed for a particular year, you may carry forward the excess and and deduct it over the next 4 years.

Distributions from a qualified tuition program (529 plan) are excluded from income if the proceeds are used for qualified higher education expenses.  If the proceeds are not used for qualified education expenses the earnings portion of the distribution will be subject to tax and most likely a 10% penalty on top of that.  (Some exceptions apply to the application of this penalty such as the death or disability of the beneficiary.)

Qualified higher education expenses include:

• Tuition, fees, books, supplies and equipment required for attending an eligible school.
• Reasonable costs of room and board for those who are at least 1/2 time students in a degree program.
• expenses of a special needs beneficiary with a physical, mental or emotional condition that requires additional time to complete his/her education.

Yes. There are no tax consequences if the account balance is rolled over to another plan for the benefit of the same beneficiary or for the benefit of a member of the beneficiary’s family. So, for example, you can roll funds from the 529 plan of one of your children into a sibling's plan without penalty.  Nor is there any tax consequence to changing the designated beneficiary to a qualifying member of the beneficiaries family.   You may change the beneficiary or roll the account balance over to the following:

1.      Spouse of the beneficiary

2.      Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them.

3.      Brother, sister, stepbrother, or stepsister.

4.      Father or mother or ancestor of either.

5.      Stepfather or stepmother.

6.      Son or daughter of a brother or sister.

7.      Brother or sister of father or mother.

8.      Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

9.      The spouse of any individual listed above.

10.    First cousin.

A SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA plan offers great advantages for businesses that meet two basic criteria. First, your business must have 100 or fewer employees (who earned $5,000 or more during the preceding calendar year). In addition, you cannot currently have another retirement plan. 

A SIMPLE IRA plan provides you and your employees with a simplified way to contribute toward retirement. It reduces taxes and, at the same time, attracts and retains quality employees. Compared to other types of retirement plans, SIMPLE IRA plans offer lower start-up and annual costs.  

The most you will contribute as an employer is 3% of your employee's gross pay.  This is a significant cost saving over a SEP plan. With a SIMPLE plan you as the employer are able to contribute the maximum amount to your retirement account and you can offer your employees an attractive benefit without having to be the sole contributor to their retirement accounts.

SIMPLE IRA plans are easy to set up and run – your financial institution handles most of the details.  Employees contribute, on a tax-deferred basis, through payroll deductions. You can choose either to match the employee contributions of those who decide to participate or to contribute a fixed percentage of all eligible employees’ pay.  The most you will pay as an employer is 3% of your employee's gross pay.  This is a significant cost saving over a SEP plan. With a SIMPLE plan you as the employer are able to contribute the maximum amount to your retirement account.  You can offer your employees an attractive benefit without having to be the sole contributor to their retirement accounts.

Employee Contributions:

The maximum employee SIMPLE contribution amount for 2013 and 2014 is $12,000.  Participants who have attained the age of 50 can contribute an additional $2500 per year bringing their maximum annual contribution amount to $14500 for the years 2013 and 2014.   

Employer Contributions:

You have two choices in determining your contributions to the SIMPLE IRA plan:

• A 2% nonelective employer contribution, where all employees eligible to participate receive an employer contribution equal to 2% of their compensation (limited to $255,000 per year for 2013 and 2014 and subject to cost-of-living adjustments for later years), regardless of whether they make their own contributions.
• A dollar-for-dollar match up to 3% of compensation, where only the participating employees receive matching contributions.

Each year, you can choose which one you will use for the next year’s contributions.

Keeping good records after you file your taxes is more than just a good idea.  Maintaining adequate documentation will help you with substantiation if the IRS or the state selects your return for an audit. Here are five tips from the IRS about keeping good records:

1. Tax records should be kept for a minimum of three years. (I recommend five.)
2. Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property —     should be kept longer.  For example, records relating to the purchase of business assets must be kept for the full depreciable life of that asset plus three years.
3. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal or state tax return.
4. Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
5. For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on the IRS website at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56 cents per mile for business miles driven.
  
• 23.5 cents per mile driven for medical or moving purposes.
  
• 14 cents per mile driven in service of charitable organizations.
  

Interest rates will remain the same for the calendar quarter beginning Jan. 1, 2014: 

• Three (3) percent for over-payments [two (2) percent in the case of a corporation].
  
• Three (3) percent for underpayments.
  
• Five (5) percent for large corporate underpayments. 
  
• One-half (0.5) percent for the portion of a corporate over-payment exceeding $10,000.
  

• 15% is the top capital gain rate form most filers applying to long-term capital gains that fall in the 25% to 35% tax brackets.
  
• 0% for long-term capital gain income that falls in the 10% or 15% tax brackets (up to $39,600 for singles or $73800 for joint files).
  
• 20% for long-term capital gain income that falls in the 39.6% tax bracket for high-income taxpayers (income over $400,000).
  

Individuals with incomes over $200,000 if single or $250,000 married will also be subject to the new 3.8% surtax on net investment income which includes net long term capital gains.

Supreme Court Strikes Down the Defense of Marriage Act (DOMA)-  Following the Supreme Court ruling in late June 2013, the U.S. Department of the Treasury and the IRS ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. Legally-married same-sex couples generally must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status.  This ruling has implications beyond filing status.  All provisions where marriage is a factor will be impacted.  This includes personal and dependency exemptions, the standard deduction, IRA contributions, earned income credits, and the child tax credit.  Legally married same sex couples will be treated as married for all federal tax purposes including gift and estate taxes. The ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

This law MUST be applied to 2013.  Couples who would benefit from this change in prior years may be able to amend any years that are not barred by the 3 year statute of limitations.

The “employer mandate” requiring all employers with 50 or more employees to provide healtcare coverage has been postponed until 2015.

The “individual mandate” requiring all citizens and legal residents of the United States to maintain minimum essential health care coverage begins in January of 2014.  Individuals who do not maintain this coverage for themselves and their dependents will be subject to penalties which will be calculated and assessed on their 2014 tax returns.  The penalty for year 1 will be $95 or 1 percent of your taxable income, whichever is greater. If you have $50,000 in taxable income, your penalty for not maintaining adequate insurance would be $500.