College Saving with 529 Plans

For most parents, the rising cost of college education is always on their minds. Finding a way to help your children save for their education early is a key step in being prepared. Section 529 Plans or Qualified Tuition Plans, may be a way to do so.

There are two types of Section 529 plans, which are sponsored by states and educational institutions. Pre-Paid tuition plans enable taxpayers to purchase shares at colleges for future tuition. These shares are worth units, or percentages, of future tuition costs. The second type of 529 plan is a college savings plan. These plans are more like traditional investments and allow taxpayers to put money aside for a beneficiary and choose an investment option that fits their needs best.

Both types of plans have advantages and disadvantages. One undeniable advantage to a Pre-Paid tuition plan is that investors can lock in today's tuition rates for future education. Some investors may be leery of investing in a Pre-Paid Tuition plan because their children may decide to go to a different college or university. If the student selects an in-state public college, this plan would cover the tuition and required fees associated. If the student chooses to attend an out-of-state or private school, the plans usually will pay the average in-state college tuition.

College savings plans, unlike the Pre-Paid tuition plan, do not lock in today's rates for tomorrow. Most, like any investment, are subject to market risk. An advantage however is that withdrawals can be used at any college or university. Also, withdrawals can be used not only for tuition and mandatory fees (like Pre-Paid tuition plans) but they can also be used for room & board, books and required computers (which only some Pre-Paid tuition plans cover).

529 Plan earnings are not subject to federal income tax as long as the withdrawals are used for eligible college expenses. If these withdrawals are not used for college expenses, the earnings will be taxed and an additional 10% penalty will be added to the earnings.

As with any investment, be mindful of the fees that will be charged for your investment. Pre-paid tuition plans often charge participants enrollment and administrative fees while college savings plans can charge enrollment, maintenance, and asset management fees, among others. If you have found a plan that may be right for you, review its offering circular for more detailed information.

If you have any questions or would like more information, please contact: Susan Marley, CPA (302) 656-6632 SMarley@coverrossiter.com This post was originally posted on our website here.

Charitable Travel - How Giving Back Can Reward you at Tax Time

Giving back by volunteering or serving on a non-profit board is a reward in itself. What makes it even better is that the government wants to give you a little break at tax time for your service as well.

Taxpayers are able to deduct reasonable expenses for travel, meals, and entertainment when travelling to perform charitable services. In order for expenses to be deductible, there cannot be a significant amount of personal recreation or vacation, the travel cannot be related to influencing legislation on behalf of a tax exempt organization, and the taxpayer's service must require them to be away from their permanent residence overnight.

For individuals who travel by car to perform charitable services, there is a standard mileage rate that the government allows. For the 2011 and 2012 tax years, taxpayers are able to deduct 14 cents per mile as well as tolls and parking costs incurred.

Keep written records of your travel and save all receipts related to the deductions you will be claiming. As always, use good judgment when considering the deductibility of expenses. The IRS does consider how necessary the travel was in order to perform the charitable services.

If you have any questions, or require additional information, please contact:

Susan K. Marley, CPA
302-656-6632
SMarley@CoverRossiter.com

This article can also be found on our website at http://bit.ly/VolunteerRewards.

FASB Project on Accounting for Leases

The rules on lease accounting have remained substantially unchanged since the 1970’s.  For the most part, lease payments are expensed as paid over the course of the lease.  Leases where the threshold for ownership transfer is met as defined by a narrow series of accounting parameters (capital leases) are accounted for as though the ownership had in fact changed hands with the net present value of lease payments being treated as a debt to be paid.

The Financial Accounting Standards Board (FASB) released an initial exposure draft on lease accounting rules in 2011, which, if implemented, would result in major changes to the manner in which leases are recorded by both lessors and lessees.  Based on the feedback received from industry professionals, the FASB decided to revise this exposure draft and FASB expects to issue a revised exposure draft by mid 2012.
Based on the current exposure draft, all organizations would require the recording of “right of use” assets (or liability) for all leases based upon the net present value of the contractual and probable lease payments discounted based on the incremental borrowing rate of the lessee.

If you have any questions or would like more information, please contact:

Eric Williams, CPA 302-656-6632 ewilliams@coverrossiter.com