Grossbach Zaino & Associates, CPA's, PC

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A Student Loan Tax Break

If you are paying interest on one or more student loans, you may be able to deduct up to $2,500 of the interest annually. The deduction is “above the line,” so you don’t need to itemize to claim it.


General Rules


To qualify, the debt must have been incurred by you, your spouse, or your dependent (as of the time the debt was incurred) for the sole purpose of paying tuition, room and board, and related expenses for post-high-school education. Certain post-graduate and vocational programs also qualify. The student must be a degree candidate carrying at least half the normal full-time course load.


The person claiming the deduction must be legally obligated to make the interest payments and not be another taxpayer’s dependent. Married couples must file jointly to claim the deduction. For 2016, the deduction is phased out if a couple’s adjusted gross income is between $130,000 and $160,000 ($65,000 and $80,000 for single filers).


Home Equity Loans


Taxpayers who choose to use a home equity loan for higher education expenses also may be able to deduct the interest on their loans. Generally, interest on a home equity loan may qualify for an itemized deduction if the underlying debt doesn’t exceed $100,000 ($50,000 for a married taxpayer filing separately) and all mortgages on the home do not exceed the home’s fair market value.

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Document Carefully When Making Donations


Individual taxpayers may deduct their charitable gifts as an itemized deduction for income-tax purposes. However, the IRS has very specific requirements when it comes to documenting contributions.


The Basics


You cannot deduct any contribution of cash, check, or other monetary gift unless you maintain, as a record of the contribution, a bank record or a written communication from the charity showing its name, plus the date and the amount of the contribution. For noncash donations, you need a receipt and a record showing the charity’s name and a description of the gift.


If the value of any gift equals $250 or more, you also need a contemporaneous written acknowledgement from the charity stating the amount of any donation made by cash (or check); a description of any property other than cash; and a statement of whether the charity provided any goods or services in exchange for the gift and, if so, a description and a good faith estimate of the value.


Noncash Contributions Greater Than $500


The general rules for noncash contributions are the following:


  • For contributions of $500 to $5,000, the donor must attach a description of the donated property to the tax return


  • For contributions of $5,000 to $500,000, the donor must attach a “qualified appraisal” to the tax return, along with additional information about the property and the appraisal


  • For contributions of more than $500,000, the donor must attach a qualified appraisal to the return


Additional rules apply for contributions of motor vehicles, boats, and airplanes if the donation’s claimed value exceeds $500.

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Filing as Head of Household

Filing as a head-of-household taxpayer may be more advantageous than filing as a single taxpayer. Why? Generally, it results in a lower income-tax liability.


To qualify, you generally must:


  • Be unmarried at the end of the tax year (certain married taxpayers living apart may qualify),


  • Not be a surviving spouse who qualifies for joint return rates,*


  • Not be a nonresident alien at any time during the tax year, and


  • Maintain a household that, for more than half the tax year, is the residence of at least one qualifying child or dependent relative or is the residence of your dependent parent(s), whether or not you reside there.


A qualifying child must meet all the requirements of being a dependent, with the exception that the custodial parent may have released the dependency exemption to another person.


* Generally, a widow or widower with a dependent child may qualify for joint return rates for two years following the year his or her spouse died.

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Long-term Care Insurance

Americans are living longer. Given the significant costs involved, the possibility that long-term care might be needed one day is a financial planning concern.


Long-term care insurance is designed to cover the cost of care for individuals who need assistance with “activities of daily living,” such as bathing and dressing. Medicare and supplementary health insurance policies generally do not cover long-term care services. And Medicaid coverage can only be accessed if an individual meets strict state and federal income and asset guidelines.


Some employers provide long-term care insurance as an employee benefit. Long-term care policies are also available to the public. Before making a decision to purchase a particular policy, individuals should compare pricing, costs, and features and investigate the insurer’s financial health.


Long-term care policies generally fall into two categories: indemnity and reimbursement. An indemnity-based policy pays a per diem or dollar amount of benefits for an insured’s long-term care expenses, regardless of the insured’s actual expenditures. For 2016, benefits of up to $340 per day (or the actual cost of long-term care services, if greater) are income-tax free.


A reimbursement policy, on the other hand, does not pay a set dollar amount. Instead, the insurer pays for long-term care expenses incurred up to the policy’s maximum benefit. Policy benefits are income-tax free.


Premiums paid for qualified long-term care contracts are deductible as itemized medical expenses, up to certain annual limits. Self-employed individuals may deduct the premiums as a business expense.


If you would like to discuss long-term care insurance or need help choosing a policy, please contact us.

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Make Gifts, Reap Tax Benefits

Your family, your other loved ones, your favorite charity — you can benefit them and receive tax benefits for yourself by making gifts of publicly traded stock that has appreciated in value since you acquired it.


Benefit an Individual


Every year, you can give gifts of money or other assets of up to $14,000* each to an unlimited number of individuals free of federal gift tax. If you’re married, your spouse can also give $14,000 per recipient. As long as you stay within these parameters, annual gifts won’t count against your federal gift- and estate-tax exclusion of $5.45 million (in 2016).


With gifts of appreciated stock, the recipient of the gift assumes your original cost basis in the securities. Since you haven’t sold the stock, you avoid a capital gains tax liability. Your gift could be even more valuable if the stock’s price continues to rise after you make the gift. A gift recipient who’s in the 10% or 15% income-tax bracket could sell the stock and pay no capital gains tax.


Benefit a Charity


Donating appreciated stock to a qualified charity offers a tax-efficient way to benefit the organization. If you’ve held the stock for longer than one year, you’ll be entitled to take a charitable tax deduction for the market value of the gift (certain income limits apply). This strategy may allow you to make a bigger donation and receive a larger tax deduction than if you had sold the stock, paid capital gains tax, and donated the net proceeds.


* This amount is periodically adjusted for inflation.