Now that fall is here and school has started, many teachers are dipping into their own pockets to buy classroom supplies. Doing this throughout the year can add up fast. Fortunately, eligible educators may be able to defray qualified expenses they paid in 2019 when they file their tax return in 2020.
Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of his or her qualified expenses when they file.
Taxpayers qualify for this deduction if they:
Teach any grade from kindergarten through twelfth grade.
Are a teacher, instructor, counselor, principal or aide.
Work at least 900 hours during the school year.
Work in a school that provides elementary or secondary education.
Qualified expenses include:
Professional development courses.
Computer equipment including related software and services.
Athletic supplies only for health and physical education.
Eligible taxpayers can claim this deduction when they file their taxes. The IRS encourages teachers to consider using tax software to help guide them through the process of claiming the deduction.
Many teachers may qualify to use online software for free with IRS Free File.
WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued Revenue Procedure 2019-40 and proposed regulations that provides relief to certain U.S. persons that own stock in certain foreign corporations.
The Revenue Procedure limits the inquiries required by U.S. persons to determine whether certain foreign corporations are controlled foreign corporations (“CFCs”). The Revenue Procedure also allows certain unrelated minority U.S. shareholders to rely on specified financial statement information to calculate their subpart F and GILTI inclusions and satisfy reporting requirements with respect to certain CFCs if more detailed tax information is not available. It also provides penalty relief to taxpayers in the specified circumstances.
Finally, the Revenue Procedure announces that the IRS intends to amend the instructions for Form 5471 to reduce the amount of information that certain unrelated minority U.S. shareholders of the CFC are required to provide. It will also limit the filing requirements of U.S. shareholders who only constructively own stock of the CFC solely due to downward attribution from another person.
The proposed regulations provide additional relief to taxpayers affected by the repeal of section 958(b)(4). These regulations also propose modifications to existing regulations that are intended to ensure, in certain appropriate circumstances, that the operation of certain rules is consistent with their application before the repeal of section 958(b)(4).
The repeal of section 958(b)(4) was part of the Tax Cuts and Jobs Act. For more information about this and other TCJA provisions, visit IRS.gov/taxreform.
Small business owners and others with tax questions can check out the IRS Video Portal to get more information on a wide range of topics. Taxpayers can visit the site to find videos and recorded webinars on topics such as:
New IRS Tax Withholding Estimator Tell your employees about the new IRS Tax Withholding Estimator. The new taxpayer-friendly tool on IRS.gov helps workers tailor the amount of income tax their employer should withhold from their paychecks and avoid unexpected results at tax time. The Estimator allows filers to target a tax due amount close to zero or a refund around $500.
A Charity’s Treatment of Volunteers Can Affect Tax Responsibilities
If your organization has employees or volunteers, it may have tax responsibilities. The Employment Issues course explains how charities classify employees, how to report employee wages, the rules regarding gifts to volunteers and filing requirements. Organizational leadership and volunteers should attend the Tax-Exempt Organization Workshop for important information on the benefits, limitations and expectations of tax-exempt organizations.
The 2019 Calendar Year Projections of Information and Withholding Documents for the United States and IRS Campuses (Publication 6961) is now available on SOI’s Tax Stats Web page. The publication presents multi-year projections (Calendar Years 2019–2027) of the number of information and withholding documents to be filed with the IRS by processing categories important to IRS planning operations, including form type and filing medium. Selected forecasts of paper returns are also shown by IRS processing campus locations.
See 3 ways that may help married couples boost their lifetime benefits.
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A couple with similar incomes and ages and long life expectancies may want to consider maximizing lifetime benefits by both delaying their claim.For couples with big differences in earnings, consider claiming the spousal benefit, which may be better than claiming your own.A couple with shorter life expectancies may want to consider claiming earlier.
Married couples may have some advantages when deciding how and when to claim Social Security. Even though the basic rules apply to everyone, a couple has more options than a single person because each member of a couple1 can claim at different dates and may be eligible for spousal benefits.
Making the most of Social Security requires some strategy to take advantage of the basic benefit rules, however. After you reach age 62, for every year you postpone taking Social Security (up to age 70), you could receive up to 8% more in future monthly payments. (Once you reach age 70, increases stop, so there is no benefit to waiting past age 70.) Members of a couple may also have the option of claiming benefits based on their own work record, or 50% of their spouse’s benefit. For couples with big differences in earnings, claiming the spousal benefit may be better than claiming your own.
What’s more, Social Security payments are guaranteed for life and should generally adjust with inflation, thanks to cost-of-living increases. Because people are living longer these days, a higher stream of inflation-protected lifetime income can be very valuable.
But to take advantage of the higher monthly benefits, you may need to accept some short-term sacrifice. In other words, you’ll have less Social Security income in the first few years of retirement in order to get larger benefits later.
“As people live longer, the risk of outliving their savings in retirement is a big concern,” says Ann Dowd, a CFP® and vice president at Fidelity. “Maximizing Social Security is a key part of how couples can manage that risk.”
A key question for you and your spouse to discuss is how long you each expect to live. Deferring when you receive Social Security means a higher monthly benefit. But it takes time to make up for the lower payments foregone during the period between age 62 and when you ultimately chose to claim, as well as for future higher monthly benefits to compensate for the retirement savings you need to tap into to pay for daily living expenses during the delay period.
But when one spouse dies, the surviving spouse can claim the higher monthly benefit for the rest of their life. So, for a couple with at least one member who expects to live into their late 80s or 90s, deferring the higher earner’s benefit may make sense. If both members of a couple have serious health issues and therefore anticipate shorter life expectancies, claiming early may make more sense.
How likely are you to live to be 85, 90, or older? The answer may surprise you. Longevity has been steadily increasing, and surveys show that many people underestimate how long they will live. According to the Social Security Administration (SSA), a man turning 65 today will live to be 84.3 on average and a woman will live to be 86.6 on average. For a couple at age 65, the chances that one person will survive to age 85 are more than 75%. Further, the SSA estimates that 1 in 4 65-year-olds today will live past age 90, and 1 in 10 will live past age 95.2
A couple with similar incomes and ages and long life expectancies may maximize lifetime benefits if both delay.
How it works: The basic principle is that the longer you defer your benefits, the larger the monthly benefits grow. Each year you delay Social Security from age 62 to 70 could increase your benefit by up to 8%.
Who it may benefit: This strategy works best for couples with normal to high life expectancies with similar earnings, who are planning to work until age 70 or have sufficient savings to provide any needed income during the deferral period.
Example: Willard’s life expectancy is 88, and his income is $75,000. Helena’s life expectancy is 90, and her income is $70,000. They enjoy working.
Suppose Willard and Helena both claim at age 62. As a couple, they would receive a lifetime benefit of $1,100,000. But if they live to be ages 88 and 90, respectively, deferring to age 70 would mean about $250,000 in additional benefits.
All lifetime benefits are expressed in today’s dollars, calculated using life expectancies of 88 and 90 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
Strategy No. 2: Claim early due to health concerns
A couple with shorter life expectancies may want to claim earlier.
How it works: Benefits are available at age 62, and full retirement age (FRA) is based on your birth year.
Who it may benefit: Couples planning on a shorter retirement period may want to consider claiming earlier. Generally, one member of a couple would need to live into their late 80s for the increased benefits from deferral to offset the benefits sacrificed from age 62 to 70. While a couple at age 65 can expect one spouse to live to be 85, on average, couples who cannot afford to wait or who have reasons to plan for a shorter retirement, may want to claim early.
Example: Carter is age 64 and expects to live to 78. He earns $70,000 per year. Caroline is 62 and expects to live until age 76. She earns $80,000 a year.
By claiming at their current age, Carter and Caroline are able to maximize their lifetime benefits. Compared with deferring until age 70, taking benefits at their current age, respectively, would yield an additional $113,000 in benefits—an increase of nearly 22%.
All lifetime benefits are expressed in today’s dollars, calculated using life expectancies of 78 and 76 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
Strategy No. 3: Maximize the survivor benefit
Maximize Social Security—for you and your spouse—by claiming later.
How it works: When you die, your spouse is eligible to receive your monthly Social Security payment as a survivor benefit, if it’s higher than their own monthly amount. But if you start taking Social Security before your full retirement age (FRA), you are permanently limiting your partner’s survivor benefits. Many people overlook this when they decide to start collecting Social Security at age 62. If you delay your claim until your full retirement age—which ranges from 66 to 67, depending on when you were born—or even longer, until you are age 70, your monthly benefit will grow and, in turn, so will your surviving spouse’s benefit after your death. (Get your full retirement ageOpens in a new window)
Who it may benefit: This strategy is most useful if your monthly Social Security benefit is higher than your spouse’s, and if your spouse is in good health and expects to outlive you.
Example: Consider a hypothetical couple who are both about to turn age 62. Aaron is eligible to receive $2,000 a month from Social Security when he reaches his FRA of 66 years and 6 months. He believes he has average longevity for a man his age, which means he could live to age 85. His wife, Elaine, will get $1,000 at her FRA of 66 years and 6 months and, based on her health and family history, anticipates living to an above-average age of 94. The couple was planning to retire at 62, when he would get $1,450 a month, and she would get $725 from Social Security. Because they’re claiming early, their monthly benefits are 27.5% lower than they would be at their FRA. Aaron also realizes taking payments at age 62 would reduce his wife’s benefits during the 9 years they expect her to outlive him.
All lifetime benefits are expressed in today’s dollars, calculated using life expectancies of 85 and 94 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
If Aaron waits until he’s 66 years and 6 months to collect benefits, he’ll get $2,000 a month. If he delays his claim until age 70, his benefit—and his wife’s survivor benefit—will increase another 28%, to $2,560 a month. (Note: Social Security payout figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and possibly subject to income tax.)
Waiting until age 70 will not only boost his own future cumulative benefits, it will also have a significant effect on his wife’s benefits. In this hypothetical example, her lifetime Social Security benefits would rise by about $69,000, or 16%.
Even if it turns out that Elaine is overly optimistic and she dies at age 90, her lifetime benefits will still increase approximately 34% and she would collect approximately $129,000 more in Social Security benefits than if they had both claimed at 62 (vs. both waiting until age 70 to claim Social Security).
In situations where the spouse’s Social Security monthly benefit is greater than their partner’s, the longer a spouse waits to claim Social Security, the higher the monthly benefit for both the spouse and the surviving spouse. For more on why it’s often better to wait until at least your FRA before claiming Social Security, read Viewpoints on Fidelity.com: Should you take Social Security at 62?
Social Security can form the bedrock of your retirement income plan. That’s because your benefits are inflation-protected and will last for the rest of your life. When making your choice, be sure to consider how long you may live, your financial capacity to defer benefits, and the impact it may have on your survivors. Consider working with your Fidelity financial advisor to explore options on how and when to claim your benefits.
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This information is intended to be educational and is not tailored to the investment needs of any specific investor.This article uses the Annuity 2000 mortality table to determine longevity, which is a narrower universe than the Social Security Administration’s. The Social Security Administration uses a mortality table that averages the entire nation. The Annuity 2000 table better reflects the typical Fidelity client, skewing toward a somewhat more educated and affluent individual with a slightly longer life span.1. On June 26, 2015, the U.S. Supreme Court issued a decision in Obergefell v. Hodges, holding that same-sex couples have a constitutional right to marry in all states and have their marriage recognized by other states. This ruling made it possible for same-sex couples to benefit from SSA programsOpens in a new window.2. https://www.ssa.gov/planners/lifeexpectancy.htmlOpens in a new windowLifetime benefits are determined by calculating the present values of the Social Security payments over time. The present values are calculated by discounting the Social Security payouts by an inflation-adjusted rate of return. The illustrations use the historical average yield of U.S. 10-Year TIPS for discounting.The benefit calculations and discounting in this article do not account for the effect of taxes. The after-tax discount rate for an individual could be very different from another depending on multiple factors, including the sources and levels of income. For individualized estimates, one could try the Retirement Estimator from the Social Security Administration. It assumes a person is in good health. Average longevity corresponds with a 50% chance of living to a stated age. Above-average longevity corresponds with a 25% chance of living to a stated age.The information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material effect on pretax and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917702419.7.2
Deductions for business meals are back on the table. Allaying initial fears, the IRS recently provided clarification concerning food and beverage deductions under the Tax Cuts and Jobs Act (TCJA) in Notice 2018-76. Based on this guidance, many of your business clients may still qualify for some write-offs.
Significantly, the TCJA eliminated the traditional 50% deduction for business entertainment and meals, effective in 2018. Therefore, clients can no longer write off expenses relating to entertainment, recreation or amusement like the cost of a play or concert tickets following a substantial business discussion. However, the TCJA generally preserved the other rules for food and beverage expenses under Section 274, including the strict substantiation requirements.
This led to arguments in the tax community as to whether certain business meal expenses would remain deductible. (Clearly, deductions for meals are still available for taxpayers traveling away from home on business.) Under the interim guidance provided in Notice 2018-76, the IRS says that a 50% deduction is allowed for food and beverage expenses if the following conditions are met:
The expense is an ordinary and necessary business expense under Section 162(a) paid or incurred during the tax year when carrying on any trade or business;
The expense isn’t lavish or extravagant under the circumstances;
The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact; and
For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices or receipts.
Furthermore, the IRS indicated it won’t allow the crackdown on entertainment and meal deductions to be circumvented by inflating the amount charged for food and beverages.
Notice 2018-76 contains three examples illustrating how the IRS intends to interpret these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the game.
Example 1: Taxpayer A takes a customer to a baseball game and buy the hot dogs and drinks. The tickets are nondeductible entertainment, but Taxpayer A can deduct 50% of the cost of the hot dogs and drinks purchased separately.
Example 2: Taxpayer B takes a customer to a basketball game in a luxury suite. During the game, they have access to food and beverages, which are included in the cost of the tickets. Both the cost of the tickets and the food and beverages are nondeductible entertainment.
Example 3: The facts involving Taxpayer C are the same as they are for Taxpayer B, except that the invoice for the basketball game tickets separately states the cost of the food and beverages. As a result, Taxpayer C can deduct 50% of the cost of the food and beverages.
The IRS has announced it plans to issue proposed regulations on this issue. It is requesting comments by December 2, 2019.
When you purchased your home, you may have paid what is called “settlement” or “closing costs” in addition to the contract price. These costs are typically divided between you and the seller according to the sales contract. If you built your home, these costs were probably paid when you bought the land or settled on your mortgage.
What You Can and Can’t Deduct To deduct expenses of owning a home, you must file Form 1040, U.S. Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). If you itemize, you can’t take the standard deduction. There are three primary discussions: real estate taxes, sales taxes, and home mortgage interest. Generally, your real estate taxes and home mortgage interest are included in your house payment. Your house payment. If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Your house payment may include several costs of owning a home. The only costs you can deduct are state and local real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest. These are discussed in more detail later. Some nondeductible expenses that may be included in your house payment include:
• Mortgage insurance premiums,
• Fire or homeowner’s insurance premiums, and • The amount applied to reduce the principal of the mortgage.
Minister’s or military housing allowance. If you are a minister or a member of the uni-formed services and receive a housing allowance that isn’t taxable, you still can deduct your real estate taxes and your home mortgage interest. You don’t have to reduce your deductions by your nontaxable allowance. For more information, see Pub. 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Pub. 3, Armed Forces’ Tax Guide. Nondeductible payments. You can’t deduct any of the following items. • Insurance, including fire and comprehensive coverage, mortgage insurance, and title insurance. • Wages you pay for domestic help. • Depreciation. • The cost of utilities, such as gas, electricity, or water. • Most settlement costs. See Settlement or closing costs under Cost as Basis, later, for more information. • Forfeited deposits, down payments, or ear-nest money.
Just about anybody can open a 529 account—parents, grandparents, other relatives, friends—as long as he or she is a U.S. citizen or a resident alien. As an account owner, you’ll pick investments, assign a beneficiary, and determine how the money is used. If you’re a New York State taxpayer, you can also benefit from the state tax deduction.**
How much financial knowledge do I need to start investing in the plan?
There are options for every level of investor which are described in detail in the Disclosure Booklet and Tuition Savings Agreement. Your choices will depend on how comfortable you are with risk and when you expect your student to need the money.
A beneficiary is the future student, or the person you open the account for. You can open an account for a child, grandchild, friend, or even yourself. The only rule is that the beneficiary must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer identification number.
What happens if the beneficiary doesn’t want to continue his or her education?
If that’s the case, you have a couple of options. You can stay invested in case he or she decides to attend school later, as there’s no age limit on using the money. Or you can change the beneficiary to an eligible family member.
You can also withdraw the money for other uses. However, a 10% penalty tax on earnings (as well as federal and state income taxes) may apply if you withdraw the money to pay for nonqualified expenses.
Using the money
How can I use the money in a 529 account?
Your account can be used for any purpose but please note the following:
Federal tax issues: To qualify for federal tax-free withdrawals on earnings, the money must be used for qualified expenses for the beneficiary at an eligible educational institution or to pay expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school (K-12 tuition).*
Qualified expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; the purchase of certain computer equipment, software, internet access, and related services, if used primarily by the beneficiary while enrolled at an eligible educational institution; certain room and board expenses during academic periods in which the beneficiary is enrolled at least half-time; and certain expenses for students with special needs. Qualified expenses also include K-12 tuition of up to $10,000 per year per beneficiary.
New York State tax issues: To qualify for New York State tax-free withdrawals on earnings, the money must be used for qualified higher education expenses at an eligible educational institution. Under New York State law, distributions for K-12 tuition expenses are considered nonqualified withdrawals and will require the recapture of any New York State tax benefits that have accrued on contributions.
Other state tax issues: Outside New York, some states may require recapture of tax deductions or tax credits previously taken for K-12 tuition withdrawals. Consult your tax and financial advisors for more information.
Can 529 accounts only be used to pay for college?
No. Your 529 account can be used to pay for qualified higher-education expenses at any eligible educational institutions, including:
Does it matter what state the beneficiary’s school is in?
No. Although you’ll be investing in a 529 plan sponsored by the State of New York, the student can attend any eligible educational institution (including eligible trade and vocational schools) in the United States or abroad.
How much does it cost to start?
There are no fees to open an account in New York’s 529 College Savings Program Direct Plan, and there is no minimum contribution amount to get started. Once you have an account, you’ll pay only $1.30 in fees per year for every $1,000 you invest in the Direct Plan (0.13% total annual asset-based fee).
How much can I invest?
529 account contribution limits are generally high—ranging from $200,000 or more, depending on the state. For the Direct Plan, you can contribute up to $520,000 on behalf of one beneficiary. This amount includes all New York-sponsored 529 savings accounts held for the same beneficiary.
What if I don’t have time for this?
We can see how you might feel that way—most parents are pretty busy these days. But starting to save early can make a big difference, and after you’ve completed your research, opening an account only takes about 10 minutes.