State Tax Problems - Edgar Palacios

Saving For Your Child's Education Now
Will qualified state tuition programs work for you? These programs allow you to put away money for your child’s future education--at today’s tuition rates.
What does this mean to you? The idea behind this is that the money you invest now can earn enough to cover the cost of increased tuition rates when your child is ready to start college. You don’t pay taxes on the interest the money earns during this period. When the money is taken out to pay for college, any earnings from the fund that you don’t use for college costs are taxable to your child, who is usually in a much lower tax bracket than you are at that point.
Check with your state for information on state tuition programs that are available to you.

Record keeping
Want peace of mind when you’re preparing your tax return? And what if you’re audited? Keep good records! Good records help you substantiate your income and deductions if you’re audited, and may save you from paying additional taxes, interest, and penalties.
Keep:

Copies of your federal and state tax returns, and Proof of your deductions and your sources of income for at least three years after you file your return. However, there are certain types of documents, such as escrow statements from home purchases, and sales and cost documentation for long-term investments, that may require you to keep records longer.

Filing for an Extension
Want peace of mind when you’re preparing your tax return? And what if you’re audited? Keep good records! Good records help you substantiate your income and deductions if you’re audited, and may save you from paying additional taxes, interest, and penalties.
Keep:

Copies of your federal and state tax returns, and Proof of your deductions and your sources of income for at least three years after you file your return. However, there are certain types of documents, such as escrow statements from home purchases, and sales and cost documentation for long-term investments, that may require you to keep records longer.

Deductions You Might Forget
Sometimes we’re in such a hurry to get our returns done that we overlook some of the deductions that we can take. If you itemize your deductions on Schedule A, don’t forget to deduct the costs you incurred while preparing your tax return. These costs include tax return preparation software, books about doing your taxes, and the fees you pay a professional for tax advice and return preparation. Enter these on line 21 of your Schedule A.
While we’re on the subject, don’t forget to deduct the annual registration fees you paid for your car or truck. You can do this only if you live in a state that bases the fees on a percentage of the car’s value. Your registration bill may tell you what amount is deductible on your return. Enter those fees on line 7 of Schedule A.

There, now wasn’t that easy?

Claiming A Child As Your Dependent
For tax year 2000, you get a $2,800 deduction for each child who qualifies as a dependent. To claim your child as your dependent, all the following must be true:
You must provide more than half of his or her support
If your child was 24 or older this tax year, or between 19 and 23 and not a full-time student, his or her gross income must be less than $2,800
Your child must be a United States citizen, resident, or national, or a resident of Canada or Mexico
If your child is married, he or she must not file a joint return (unless they have no tax liability and are filing only to get a tax refund)
As long as the above rules are satisfied, a foster child who lived with you the entire year, a stepchild, adopted child, grandchild, or son or daughter-in-law can qualify as dependents.


Saving For Tuition
Want a convenient way to save for your children’s education? Consider a UGMA (Uniform Gift to Minors Act) account.
It’s a type of savings account that provides some unique benefits—and protections. The advantage is that any earnings on the account are taxable to your child (at his or her tax rate if the child is at least 14 years old), rather than to you. Also, you as the parent maintain control over the account until your child becomes an adult (usually age 18 to 21, depending on your state’s “age of majority” laws).

Shenouda & Associates can help you establish this account. Many states limit the investments you can hold in these accounts to life insurance, CDs or cash, but it still may be worth your while to check this out.

Make Sure Your W-4 Is Tax-Relief Ready
Now that the President has signed the $1.35 trillion Tax Relief Act into law, your withholding is going to change starting on July 1st. Some people will be caught in a trap that might mean penalties come April. That means it's time to revisit your W-4 to make sure it's tax-relief ready.