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2 of 4: 4 Tax Tips for Making it Through the Recession with a Financial Advantage. Number Two Go Back To School

Generally speaking, during any downturn in the market most career counselors would advise the unemployed job seeker to consider going back to school.  In actuality, this advice can also benefit the employed job seeker as well.

 

Registering in a degree or certificate program has a number of advantages.  The most obvious advantage is increased knowledge and skill in the particular area of study.  This can help a job seeker who is interested in changing career paths, looking to get a promotion or just remaining employed.  Also, an advanced degree can provide opportunities for transitioning into a higher paying job.  Most importantly, however, it can also leave a little bit of extra money in your pocket in the short term if you take advantage of the government’s education tax incentive programs.  Below is a summary of a tax incentive program you may be eligible to take advantage of if you decide to take the plunge and go back to school.   

   

The Lifetime Learning Credit is a credit for those pursing higher education beyond the first two years of an undergraduate program.[1]  Since it is a credit rather than a deduction, you may be able to subtract the full amount of the cost from your federal income tax.  To qualify for the credit, you must pay post-secondary tuition and certain related expenses.[2]

 

The credit applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills, regardless of the number of years in the program.  If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return

 

This credit is phased out for Modified Adjusted Gross Income over $48,000 ($96,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $58,000 or more ($116,000 for married filing jointly).  As a result, it is ideal for someone who may have lost their job part way through the year or has had their income reduced by an employer during the recession. 

Taking advantage of this credit does mean have a little bit of disposable income.  Not everyone will be able to benefit from this.  However, if you have the opportunity it is worth considering as part of your planning. 

 

For more information on available educational tax credits, see Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

 



[1]The Hope Tax Credit is available for students in their first and second year of college or a vocational program.  The Obama administration budget has proposed that the credit should be made available for four years.   Our discussion assumes that those going back to school have already completed one degree so we will not be reviewing this credit in any detail.  For more information on how this credit works, please visit the IRS website.

[2]You may also be eligible to claim this expense for your spouse or any of your dependents.


4 Tax Tips for Making It Through the Recession. Number One: Start Your Own Business

 

So, you lost your job and you’re not sure what to do next.  You have been posting your resume on-line and networking profusely.  But, nothing!  Well, all is not lost.  You may want to consider starting your own business.  There is no better time to start a business than when you have all the time in the world to start your own business. 

 

There are a number of advantages to starting your business.  First, when you go to an interview six months after being let go from your last job and you are asked to explain the “gap period” in your employment, you can respond enthusiastically with, “I started a successful (blank) business during that time and developed the following skills”.  Second, in the event the business does take off before the standard three year break even target date, you will have income to supplement your cost of living until you get back in the workforce.  In fact, you may actually develop a profitable concept and not need to go back to work.  Third, you will develop a sense of self confidence and keep the creative energy juices flowing.  Finally, and very importantly you will be able to deduct your business expense, including things such as rent for the space you conduct your business in and supplies which will allow you to extend your dollars while you are still unemployed.    

     

Well, what are business expenses?  The IRS defines business expenses as the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.  According to the IRS website, to be deductible, a business expense must be both “ordinary” and “necessary”. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.

 

Keep in mind, though, that you may not be able to deduct some costs. Costs which are considered to be your investment in your business are called capital expenses. Capital expenses are considered assets in your business, such as business assets and business start up costs. 

 

The IRS also notes that, generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.  For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible.

 

Further, if you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.  Also, if you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.

 

Rental expenses are also deductible as are interest expenses, taxes and insurance.  The IRS defines rent as any amount you pay for the use of property you do not own.  In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business.  You can deduct interest expenses if the amount charged is for the use of money you borrowed for business activities.  Also, you can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.  Finally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.

This list is not all inclusive of the types of business expenses that you can deduct.  For more information, talk to a tax professional or visit the IRS website:  https://www.irs.gov/businesses/small/article/0,,id=109807,00.html


Taxing Our Way to Better Health

 

The Obama Administration has been exploring a number of possibilities for funding health care reform in the US.   Much of the uncertainty should dissipate soon now that the Ways and Means Committee has commenced work on the Bill. 

Supporters champion the bill as logical alternative to the private insurance companies.  Ways and Means Chairman Charles Rangel, a big supporter of the bill writes on his website, “Historic legislation will reduce out-of-control costs, improve choices for patients, and expand access to quality, affordable health care.”  He goes on to say that “[r]eforming America’s health care system to control costs and improve access to quality affordable care is not only the moral thing to do, it is also critical to our economic recovery and the long-term fiscal health of our nation,”   On the other hand, some argue that the government’s health reform bill will not provide the needed change that the current Administration is expecting.  The New York Times reported that, “Senate Republicans so far have been unanimously opposed to the health committee measure. All 10 Republicans on the health panel voted against it, warning that it would not reduce the cost of medical care and would not expand coverage to all Americans as Mr. Obama hopes.”  Nonetheless, if the Administration can find a plausible way to fund the bill, there is a high probability that some form of the bill will be passed, despite resistance.   

 

One proposal for funding the bill is to levy an income surtax.  This has not received a lot of support.  Some expect that a change in tax rules governing non-resident investments in the US and US persons investing in foreign countries will help to provide some of the much needed cash.  What seems to be certain, though, is that lawmakers are focused on exploring money raising initiatives that will not add to the US debt level.  The goal is to fund the cost of the bill with additional tax revenue. 

Below is a summary of some of the key benefits you can expect from the bill: 

 

  • No more co-pays or deductibles for preventive care

  • An annual cap on out-of-pocket expenses—keeping Americans from financial ruin
     
  • An end to rate increases for pre-existing conditions, gender or occupation.
     
  • Group rates of a national pool if you buy your own plan
     
  • Guaranteed affordable oral health, hearing and vision care for kids

  • End to denials for pre-existing conditions like heart disease, cancer or diabetes

  • Get needed care, no lifetime limits

  • Job and life choices no longer based on health care coverage

Marsha Henry

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New Treaty in Effect for Canada and Greece

The tax convention between Canada and The Hellenic Republic was signed on June 29, 2009.  Like all other tax treaties signed by Canada, this one is intended to govern activities of residents and non-residents of Canada that in order to avoid of double taxation and prevent fiscal evasion with respect to taxes on income and on capital.

The Treaty applies any person (corporate or individual) who is a resident of one or both of the Contracting States.  The agreement provides a definition of resident, as well as a definition of permanent establishment.  It also governs the method and approach to taxing income such as income from immovable property and business profits.  In addition, the agreement contains rules governing the taxation of dividends and interest paid by a company that is a resident of a Contracting to a resident of the other Contracting State.

The electronic version of the Treaty is provided on the Department of Finance Canada website for convenience of reference.  For more information and to review the actual text of the Treaty click on the following link or paste the URL you’re your web browser:  https://www.fin.gc.ca/treaties-conventions/greece_1-eng.asp

Copyright© 2009