IRS Eases Investment Rules for 529 College Savings Plans

Saving for college is always difficult and is even more so during the current economic downturn. One of the most popular college savings plans are so called “529 plans.” The IRS recently announced that participants in 529 plans will be able to change their investments more often in 2009 than in past years.

The IRS will allow a change in investment strategy twice in 2009. This is good news for 529 plan participants, especially those who may otherwise be locked into a mix of investments that has turned out to be more speculative than initially contemplated.

Tax-Free Distributions
A 529 plan is a type of qualified tuition program. In a 529 plan, taxpayers contribute to an account established for paying a student’s educational expenses. Eligible educational expenses include the costs of tuition, books, and fees at eligible institutions, such as colleges, vocational schools, and other postsecondary institutions.

Contributions to 529 plans are not tax-deductible. However, earnings are tax-free, and distributions used to pay the beneficiary’s qualified education expenses are tax-free.

A 529 plan should not be confused with a Coverdell Educational Savings Account (Coverdell ESA). The latter is also a savings account for education expenses that offers tax-free distributions. Funds saved in a Coverdell ESA can be used for elementary and secondary school
expenses as well as college costs.

Investment Decisions
Generally, participants in 529 plans must select only from among broadbased investment strategies designed exclusively by the program. Additionally, the IRS has traditionally permitted a change in investment strategy only once a year.

In response to the economic slowdown and the turmoil in the financial markets, the IRS will allow investments in a 529 plan to be changed during 2009 on a more frequent basis. A 529 plan will not violate the investment restriction if it permits a change in the investment strategy twice in calendar year 2009, as well as upon a change in the designated beneficiary of the account.

If you have any questions about 529 plans, or other tax incentives for education, please contact Doeren Mayhew at (248) 244-3000.

PR: wait... I: wait... L: wait... LD: wait... I: wait... wait... Rank: wait... Traffic: wait... Price: wait... C: wait...

Saving Your Tax Records: What You Need to Know

Now that the end of the traditional tax filing season is upon us, it may be tempting to purge certain tax documents from your files for the current and past tax years. However, you should be aware of the rules for retaining relevant tax records in the event that the IRS – or another taxing authority – requires that those records be produced as part of an audit.

Keep at Least Three Years

The following records are commonly used to substantiate a taxpayer’s income and expense items:

• Form(s) W-2
• Form(s) 1099
• Form(s) K-1
• Bank and brokerage statements
• Canceled checks or other proof of payment of deductible expenses

At a minimum, the above tax records should be kept for a three-year period following the date that you filed your return, or its due date, if later.

However, the IRS’s time limit for initiating an audit on a return where income was grossly understated, yet no fraud was discovered, is six years. Therefore, it is ideal to retain the above documents for six years to better protect yourself in the event of an audit.

Similarly, you should keep investment records for a period of time after you liquidate any given investment. Documentation that substantiates the gain or loss on an investment should be kept for a period of time that corresponds with the time frame that you retain other tax documents supporting the return on which you report the sale.

Prior Years’ Tax Returns

It is a good idea to maintain one or more permanent files with important legal and personal documents, including those relating to taxes. Specifically, as a general rule, you should retain copies of your federal and state income-tax returns (and any tax payments) indefinitely. For instance, the IRS or another taxing authority could claim that you never filed a particular year’s return. If that occurs, the IRS (or other authority) could assess tax and penalties relating to the return in question. You will need a copy of your return to bolster your position that you actually filed the return.

Need More Information?

Filing your returns on a timely basis is just one aspect of properly handling your taxes. Be prepared to defend yourself in the event of an audit by retaining your records for the appropriate time period. Call the professionals at Doeren Mayhew today at (248) 244-3000 if you have any further questions.

Individual Tax Relief

The American Recovery and Reinvestment Tax Act of 2009 (the “Act”) was enacted on February 17, 2009, and contains several federal tax provisions aimed at stimulating the economy and providing job creation. Both individual taxpayers and businesses stand to benefit from the tax relief measures in the Act.

Many of the Act’s individual income-tax provisions contain income phaseouts that limit the benefits available to higher-income taxpayers. The Act is designed to provide temporary tax relief in an effort to spur spending. Following is a summary of the law’s provisions.

Individual Tax Relief “Making Work Pay” Credit.

This refundable tax credit (up to $400 for individuals, $800 for couples filing jointly) seeks to stimulate spending by generally providing an increase in takehome pay through the reduction of income taxes withheld.

Economic Recovery Payment.

A one-time payment of $250 is available to adults who are eligible for Social Security, Railroad Retirement, veterans’ disability compensation or pension benefits, or Supplemental Security Income benefits.

First-Time Homebuyer’s Credit.

Increased to $8,000 for couples filing jointly, the Act provides a credit for qualifying principal residence purchases. The Act also eliminates the prior law’s requirement that the credit be paid back to the government, as long as certain conditions are met.

Child Tax Credit.

The Act expands the Child Tax Credit($1,000 for 2009 and 2010) for each qualifying child under age 17 by reducing the income “floor” that applies when determining the refundability of the credit from $8,500 in 2008 to $3,000 in 2009 and 2010.

AMT Exemption Increase.

The Act increases the Alternative Minimum Tax exemption amounts for 2009 and provides for the use of various nonrefundable tax credits to offset both regular tax and AMT.

Private Activity Bond Interest and AMT.

Tax-exempt interest on private activity bonds issued in 2009 or 2010 is not deemed an AMT preference item. Deduction for Taxes on Car Purchases. The Act provides for an income-tax deduction for state and local sales taxes paid on up to $49,500 of the cost of a qualified vehicle.

American Opportunity Tax Credit.

The Hope Scholarship credit is modified and replaced with the American Opportunity Tax Credit, which equals up to $2,500 for the cost of qualifying tuition and related expenses(per year, per student).

529 Plans and Computer Costs.

The Act expands the definition of qualified higher education expenses to encompass certain computer technology for 529 college savings plan distribution purposes.

Transportation Fringe Benefits.

Employees can exclude from income an increased amount of certain qualified transportation fringe benefits under the Act.

COBRA Insurance Continuation.

Under the Act, an individual who has been involuntarily terminated on or after September 1, 2008, through the end of 2009 is required to pay only 35% of the group health insurance premium to secure COBRA continuation coverage (for up to nine months).

Income Exclusion for Unemployment Compensation.

Federal and state unemployment benefits received (up to $2,400) in 2009 may be excluded from gross income.

For More Information about Individual Tax Relief, visit Doeren Mayhew.

Tax Planning Tip #4 - Considerations for the Tax Treatment of Bonds

• Interest on U.S. government bonds is taxable on your federal return, but it’s
  generally exempt on your state and local returns.
• Interest on state and local government bonds is excludible on your federal return. If the state or local bonds were issued in your home state, interest also may be excludible on your state return. Warning: Private activity municipal bonds may subject you to the alternative minimum tax (AMT).
• Corporate bond interest is fully taxable for federal and state purposes.
• Bonds (except U.S. savings bonds) with original issue discount (OID) build up “interest” as they rise toward maturity. You’re generally considered to earn a
  portion of that interest annually—even though the bonds don’t pay you this interest annually—and you must pay tax on it. So, these bonds may be best suited for tax-deferred vehicles, such as IRAs, or for investors with sufficient cash flow to absorb the tax.

Tax Planning Tip #3 - Save For, and With, Education Expenses

Whether you’re saving for your children’s (or grandchildren’s) education, paying higher education expenses for them or yourself, or even paying off student loan
debt, you may be eligible for tax breaks:

529 Plans
Section 529 plans enable parents (or grandparents) to either secure current tuition rates with a prepaid tuition program or create tax-advantaged savings plans to fund college expenses. In addition:

• For federal purposes, contributions aren’t deductible, but distributions used to pay qualified expenses are income tax free.
  (State treatment varies)
• The plans typically offer much higher contribution limits (determined by the sponsoring state or private institution) than ESAs, and there are no income limits for contributing.
• There generally is no beneficiary age limit for contributions or distributions.
• 529 plans provide estate planning benefits: By filing a gift tax return, you can elect to use annual exclusions for five years all at once and make a $60,000 contribution (or a $120,000 joint contribution with your spouse).

ESAs
Coverdell Education Savings Accounts (ESAs) allow more investment options than 529 plans, and they can fund expenses for elementary (including kindergarten) and secondary school as well as college. In addition:

• Contributions aren’t deductible, but distributions used to pay qualified education expenses are income tax free.
• The annual ESA contribution limit is only $2,000 per beneficiary, and your ability to contribute will be further limited or eliminated if your income is too high.
• Generally, contributions can be made only for the benefit of a child under age 18, and any amounts left in the ESA when the beneficiary turns 30 must be distributed within 30 days and any earnings will be subject to tax.

Education Credits
When your kids hit college, you may be able to claim the Hope credit (up to $1,800) or the Lifetime Learning credit (up to $2,000). Here are some other considerations:

• If your income is too high to qualify, your child may be able to claim one of the credits.
• Both a credit and tax-free 529 plan or ESA distribution can be taken as long as the expenses paid with the nontaxable distribution aren’t used to claim the credit.

Your tax advisor can help you select the most advantageous credit mix, depending on the amount of tuition paid and the number of students in your family. Student loan interest deduction. If you’re paying off student loans, you may be able to deduct up to $2,500 of interest.

Tax Planning Tip #2 - Save by Giving to Charity

Donations to qualified charities are generally fully deductible. For large donations, discuss with your tax advisor both the types of assets to give and the best ways to give them. For example:

Appreciated Assets
If you donate property you’ve held more than one year, you may be able to take a charitable deduction equal to its current fair market value. Plus you’ll avoid paying tax on the long-term capital gain you’d incur if you sold the property. For instance, instead of giving cash, donate appreciated publicly traded securities.

But beware: Gifts of appreciated assets are subject to tighter deduction limits than cash contributions. Excess contributions may be carried forward for up to five years.

CRTs
To benefit a charity while helping ensure your own financial future, consider funding a charitable remainder trust (CRT), which pays an annual amount to you for a given term. At the term’s end, the trust’s remaining assets pass to one or more charities. You receive an income tax deduction for the present value of the amount that will go to charity (the remainder interest). And you can contribute appreciated assets and avoid paying capital gains tax on their sale.

Tax Planning Tip #1 - Use Your Home as a Tax-Saving Tool

You can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. And you can deduct points related to a loan for purchasing or improving your principal residence. Also keep in mind these deductions and exclusions:

• Property tax deduction. Before paying your bill early to accelerate the deduction into 2008, review your AMT situation.
  If you end up subject to the AMT, the prepayment will be for naught because
  you’ll lose the deduction.
• Home equity debt interest deduction. Interest on home equity debt used to improve your principal residence—plus interest on up to $100,000 of home equity debt used for any purpose—is deductible. So consider using home equity debt to pay off credit cards or auto loans, whose interest isn’t deductible. But beware of the AMT: If the home equity debt isn’t used
  for home improvements, the interest isn’t deductible for AMT purposes.
• Rental income exclusion. If you rent all
  or a portion of your primary residence or second home for less than 15 days, you don’t have to report the income. But expenses associated with the rental aren’t deductible.
• Home sale gain exclusion. When you sell
  your principal residence, you can exclude up to $250,000 ($500,000 for joint filers)
  of gain if you meet certain tests. Losses aren’t deductible.

Because a second home is ineligible for the exclusion, consider converting it to rental use before selling. It will then be considered a business asset, and you may be able to defer tax on any gains by doing a like-kind exchange. Or you may be able to deduct a loss, but only to the extent attributable to a decline in value after the conversion.

Doeren Mayhew Named to Inside Public Accounting’s “Best of the Best” List for 2008

Below is one of our company's recent press releases discussing Doeren Mayhew's 14th consecutive being named one of the Best of the Best Accounting firms.

---

TROY, MICHIGAN – Doeren Mayhew, Troy-based public accounting and management consulting firm, was named by Inside Public Accounting (IPA) as one of the five “Best of the Best” CPA firms in the Great Lakes Region. Doeren Mayhew is the only Michigan-based firm to achieve this honor.

IPA’s Best of the Best recognition honors 25 firms annually for their wise management and superior operational performance in fiscal and management metrics based on 50 criteria. This is the 14th year IPA has named the best accounting firms. 250 of the best firms in the U.S. participated in this year’s IPA Annual Survey and Analysis of Firms. Each of the firms is eligible for the IPA Best of Best honor. Doeren Mayhew is one of only three firms nationally to receive the honor 14 consecutive years.

Mark Crawford, managing director of Doeren Mayhew, said, “This honor is really a reflection of a very talented and dedicated staff, and the loyalty of hundreds of Michigan’s best businesses – many of whom have been clients of the firm for 40 years or more.”

Best of the Best firms represent the top accounting firms in the nation who each demonstrate the right combination of vision, planning, and execution to deliver superior performance,” says Michael Platt, principal of the Platt Consulting Group and publisher of INSIDE Public Accounting. “Firms who earn this designation are tops in their field, and represent the best of what the accounting profession has to offer,” Platt says.

“The success of these firms stand in stark contrast to many of the negative stories of financial services companies we’ve all read about over the last few months,” says Platt. “We salute all of these firms and recognize their overall management strategies as models that the profession can be quite proud of,” Platt says.

Originally founded in 1932, Doeren Mayhew recently celebrated its 75th anniversary and has grown to become nationally and internationally recognized as trusted business advisors to thousands of individuals and businesses throughout North America and around the world. Doeren Mayhew represents manufacturers, contractors and builders, retailers, wholesalers, distributors, auto dealers, financial institutions, municipalities, school districts, and non-profit organizations, with a full range of accounting, audit, tax, merger and acquisition, and consulting services.


Doeren Mayhew Release on PRUrgent