Law Blog
Tuesday, November 20, 2007
Tax Free Education Plans as Child Support
Child support can be paid into an education fund allowing tax deductions for the payor, a tax free fund for the payee parent, and a growing education fund for the child. Most funds are designed to save for college expenses.
Did you know that some of the tax-advantaged plans for education can benefit children in grades K-12? Most plans that we think of are designed to help college students, but there are at least two types of program that can help pay for school expenses of younger students.
Coverdell Education Savings Accounts (“ESA”s) can pay expenses of a beneficiary beginning with kindergarten and going up through graduate school. A maximum of $2000 can be contributed per child, per year. There are income limits for the donor, but they are quite high: donations are restricted beginning at $95,000 of taxable income on a single return and $190,000 on a joint return.
Here’s how the Coverdell ESA works: money is contributed to a child’s plan or plans. Income earned in that account is tax-free as long as the plan assets are used to provide a surprisingly wide variety of education expenses. Funds for students K-12 can be used to provide tuition and fees, books, supplies, equipment, uniforms, transportation, tutoring, and computer access. Costs for special need students may also be included. In addition, money in a Coverdell ESA may be rolled over into a Sec. 529 Qualified Tuition Plan.
Financial assistance can also be provided to children in grades K-12 via scholarships. While this isn’t something that parents can fund for their children, it is important to be aware that scholarships exist for children in grades K-12. Scholarship funds are not taxable income as long as the scholarship is used to pay tuition, required fees, and course-related expenses, such as books, supplies and equipment. Some scholarship grants permit funds to be used for other expenses, such as room and board. If funds are used for this second category of expense, the scholarship grant is subject to income tax.
Want more information?
Ask the IRS for IRS Publication 970 Tax Benefits for Education is full of good ideas. It’s available online at www.irs.gov.
Or contact your accountant, tax attorney or estate planner.
Provided by Mildred Brown, CPA , Oakland CA
November 20, 2007Labels: Tax
posted by Susan Jeffries at
Friday, September 14, 2007
Tax on Divorce -related Attorney's fees
The legal fees and costs related to a divorce are ordinarily considered nondeductible because divorce is a personal matter and personal matters, with certain very precise exceptions, are not deductible. Only business expenses and expenses related to the production of income are deductible. Legal expenses related to a business are normally deductible, but if the fees are incurred for reasons related to the divorce, under the “inception of the right” or “origin of the claim” rules, it remains a personal expense and not a business deduction.
If you itemize your deductions, the following five sections of the Internal Revenue Code present separate opportunities for deduction of all or part of the attorneys fees, accounting fees and other expert fees incurred incident to divorce proceedings.
1. §162a(a) ordinary and necessary business expense.
2. §212(1) expense for the production or collection of income
3. §212(2) expense for conservation of income-producing property
4. §212(3) fee for tax advice
5. §162 business expense of a controlled corporation joined as a party to the divorce.
It is possible to structure one’s affairs for maximum tax advantages. Some of the opportunities include:
1. If you are ordered or agree to pay your spouse’s attorneys fees, have them characterized as spousal support. This must be negotiated.
2. Keep track of the attorneys fees related to tax matters or tax planning. (Questions about sale of the home, transfer of assets, IRA withdrawal?) Even though they are personal, these fees are deductible if tax advice is included.
3. Ask for spousal support as part of another request. The cost to obtain or enforce an award for spousal support is deductible. (This only works if you have a reasonable likelihood of success) The cost to prevent a spousal support award or reduce the amount you must pay is not deductible.
4. Ask for “Family Support”. It is treated the same as “spousal support” so the related attorneys fees are deductible to the payee (but not to the payor, sorry).
5. If you have a business, you can deduct legal fees related to business advice which you would have obtained even if there were no divorce. For example, tax advice, tax planning, organizing your corporate records, appraisals of property or business assets for business purposes such as a loan application, a new balance sheet, sale of the business which was considered before or separate from the divorce. .
Family law is one area of taxation that is difficult for most to comprehend so if you have problems, you are not alone.
Call for help before the end of the tax year, while there is still time to make changes for this tax year.
One of the unique features of our firm is that Susan has been a practicing tax attorney for over 25 years and can provide us with tax advice whenever we need it. She stays up to date on family law taxes as well as related business and personal taxes because she is actively involved in tax training activities (both giving and taking tax seminars). Her background in business also provides us with practical, working knowledge of corporate and business law.
Every case is unique so your situation may present other opportunities. If you want more help with taxes contact us or another tax professional.
Labels: Tax
posted by Susan Jeffries at
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