Are there tax breaks related to my children’s education?

There are education tax credits you can use to deduct the costs of tuition fees, books, and other required supplies that you pay to a qualified education institution. The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit are the two tax credits that can help lower your tax liability by up to $2,500 or $2,000, respectively.

The American Opportunity Tax Credit applies to the first four years of college for a full-time student.  While the Lifetime Learning Credit applies for as long as a person is a student, full-time or part-time.  However, the savings per year decreases each year the person is a student.

For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school directly.  For example, the student may purchase a book online or in an off-campus bookstore.

Expenses that are not eligible for tax breaks include:

  • Room and board
  • Insurance
  • Medical expenses (including student health fees)
  • Transportation
  • Similar personal, living or family expenses

What is a Coverdell (Section 530)?

A Coverdell is an education savings account that is exclusively created for the payment of qualified education expenses for a named individual.  However, it must meet certain requirements first to qualify.

It is treated differently than other accounts in that:

  • Withdrawals are not taxed if used for qualified education expenses.
  • Contributions can only be made until the recipient reaches the age of 18 and all funds must be distributed by the age of 30.
  • Contributions are not tax deductible.

What is an ABLE account?

An ABLE (Achieving Better Life Experiences) account is also known as a 529 ABLE or 529A account.  It is a state-operated savings account for people with the disabilities.  Funds in ABLE accounts are exempt from Supplemental Security Income (SSI) and Medicaid asset limit, but limitations apply.  Any earnings are exempt from federal income tax.  An ABLE account can be opened by a disabled individual who became disabled before the age of 26 years.

Financial Planning

How should I determine my long-term financial goals?

Determining your long-term financial goals should be a process.  The first step is to establish a realistic goal for you and your family.  Next, decide what is important to you, such as early retirement, funding family members’ education, travel, or taking care of your parents.   Finally, discuss your plans with your family.

What are some simple guidelines to follow to ensure a comfortable retirement?

These guidelines will vary depending upon the age you start saving for retirement.  If you start saving in your early 20s, you can save as little as 10 percent of your annual income to ensure a comfortable retirement.  However, if you do not start saving until much later in life then the percentage of annual income you set aside for retirement should be much greater.  The amount will depend upon the type of retirement lifestyle you desire and your retirement age.  Generally, people need about 80 percent of their pre-retirement income during the first few years of retirement.  After these initial retirement years, it generally decreases because of lifestyle adjustments that are made, enabling you to live on less money.

Long-Term Care Insurance

What is long-term care insurance?

Long-term care insurance (LTC or LTCI) is an insurance product, which helps pay for the costs associated with long-term care. Long-term care insurance covers care generally not covered by health insuranceMedicare, or Medicaid.  Long-term care insurance covers many different types of care including home care, assisted living, adult daycare, respite care, hospice care, nursing home, Alzheimer’s facilities, and home modification to accommodate disabilities.

You may be able to take an income tax deduction for paying long-term care insurance premiums.  The deduction amount varies based on the age of the covered person.  Long-term care benefits that are paid are generally excluded from income.

Is long-term care insurance necessary?

A person turning 65 today has almost a 70 percent chance of requiring some type of long-term care in their remaining years.  However, many health factors should be considered before purchasing a long-term care insurance policy.


How does legal treatment differ between married and cohabitating couples?

If you are not married to your partner, several life events are handled differently.

  • Cohabitating couples do not automatically inherit at least a portion of his/her partner’s property. While married couples are supported by state intestacy laws, which will allow a surviving spouse to inherit at least a fraction of the deceased spouse’s property.  However, if there is a will then it will take precedence.
  • When married couples divorce, they must divide up their property by legally prescribed methods. However, these same methods do not apply to unmarried couples.They can split up property whatever way they choose.
  • If a spouse becomes ill or incompetent, the other spouse usually has the legal right to make health or financial decisions upon the ill spouse’s behalf.  While unmarried couples cannot make these same decisions for ill partners unless a medical power of attorney has been executed already.  If this signed document does not exist, then the decision-making power is given to immediate family member(s).
  • Note: Laws may differ from state to state.

How can an unmarried couple protect their assets?

Below are several ways to protect your assets as an unmarried couple:

  • Will – Draft a will, which should include a directive for a living will. A living will is also known as an advance healthcare directive. It provides specific information about the health actions to be taken if the person is incapable to make decisions because of illness.
  • Power of attorney – Develop a power of attorney, which will allow the partner to take care of legal documents and financial issues on behalf of an incapacitated partner.
  • Own property jointly – Due to the right of survivorship, jointly owned property will automatically pass to the living partner.

Personal Taxes

What tax deductions can I take as a self-employed person?

Deductible business expenses must be ordinary and necessary.  Some examples of common deductible items include:

  • Home office expenses
  • Travel
  • Business insurance
  • Health insurance,
  • Internet and phone bills
  • Start-up costs
  • Advertising
  • Retirement plan contributions

However, there are many details to consider before just claiming a deduction; therefore, it is best to consult with your accountant first.

How should I handle a large capital gain in a year?

If you will have a large capital gain thanks to selling an investment, you may consider keeping the investment until the next year if this makes more sense for tax purposes.  To minimize the impact of the capital gain, you may sell any losing asset(s) in the same year.

Which records should I keep for tax purposes?

You should keep all receipts and any other income and expense records.  You should keep them for a minimum of seven years just in case you are audited.

How long should I keep tax returns?

If you are audited, the auditor will probably want to review the last few years of your tax returns.  However, it is recommended that you keep your tax returns forever.