If you’re interested in minimizing your tax obligations and maximizing your savings, consider these helpful tips, and contact us to review your tax strategy.

Losses that Offer Tax Savings

Capital loss, casualty loss, net operating loss — a loss by any name causes a financial setback. It’s something no one likes to think about, much less experience. But if you do suffer a loss, tax laws may provide a measure of relief in the form of a refund or lower taxable income. Here are examples of common losses you may experience, along with possible tax savings:

  • Capital loss. Selling assets such as stocks, bonds, limited partnership interests and collectibles for less than you paid for them can result in a capital loss. However, the loss can be applied to offset capital gains and then used to reduce ordinary income, up to an annual limit of $3,000 ($1,500 if you’re married and file separately). Any remaining balance can generally be carried forward to future years.Keep in mind that capital losses caused by the sale of investments within your retirement accounts are not deductible. Losses on the sale of personal assets, including your home, are also not deductible.
  • Casualty loss. A tax deduction may be available to you when a sudden, unexpected calamity like a wildfire or hurricane causes physical damage to your vehicle, home, furnishings or other property as long as it’s in a federally declared disaster area.For insured items, you’ll have to file a claim in order to deduct the loss, even if you know you won’t receive money from your insurance company. The loss has to exceed $100. In addition, deductibility limits involving insurance proceeds, basis and adjusted gross income (AGI) apply. Remember, you may not receive a deduction for a loss that is reimbursed by your insurance.You may be able to amend your prior-year return to reflect the current-year loss and claim an early refund. This may result in lower tax for that year that could produce a refund, but it may also change the amount of your deduction.
  • Net operating loss. When expenses from your trade or business exceed your income, a net operating loss (NOL) deduction may result. If so, you can carry the NOL forward to reduce the tax burden from expected future income. The NOL deduction is limited to 80 percent of your AGI in future years. Any amount above the threshold is carried forward indefinitely until the entire loss amount can be fully applied.Track NOL amounts that carry forward from year to year to ensure you are getting the maximum deduction.
  • Gambling loss. Did you know that you may be able to deduct the cost of those weekly lottery tickets on your tax return? That’s assuming you have gains from any type of gambling activity — but only if you itemize, and only to the extent of your gains. For example, if you have $5,000 in winnings and $7,000 in losses, you will be able to deduct $5,000. The $2,000 in excess losses is neither deductible nor eligible for carryover to future years.

Differing eligibility and limiting criteria, as well as documentation requirements and restrictions on transactions between family members and other related parties, affect the deductibility of tax losses. Contact us for help sorting out the rules and getting tax savings from losses you experience.

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Fund Retirement or Your Child’s Education?

Should you prioritize your own future over your child’s education? This is an emotionally charged question that leads many parents to fund college at the expense of their own retirement. However, with proper planning, you may be able to fund your retirement and still offer financial support for college.

Your retirement savings come first

It can be challenging to prioritize funds for an event that may be decades away over more pressing financial matters, like your child’s education. Deciding to cut back savings or allocate funds for other purposes can be risky, however, especially if you’re banking on financial resources that may not be available when you need them later on.

One of the best ways you can help your child is to ensure you won’t be a financial burden on them in the future. That means prioritizing saving for your retirement now — not holding off retirement contributions in lieu of paying for their college expenses.

Once you retire, your savings often becomes your main source of income. You’ll most likely depend on it to live, eat and pay for medical expenses that aren’t covered by Medicare. Keep in mind that nearly two-thirds of Americans retire before they reach 65, according to a poll from the Transamerica Center for Retirement Studies. You may end up using your funds to cover your basic needs for as much as 20 or even 30+ years.

Education for your children is important, but it’s secondary to your long-term wellbeing.

Tips to save for retirement and college

While building your nest egg takes priority, there are also several options to help financially support your child’s college education. Take a look at the following suggestions to save for both:

  • Take advantage of catch-up contributions. Once you’ve turned 50, you can start contributing more money to your retirement accounts. In 2019, you can save up to $25,000 in a 401(k) and up to $7,000 in an IRA.
  • Use your time wisely. Start early to use time to help grow the value in your retirement and education savings accounts. Take advantage of employer-provided 401(k) or similar retirement programs, especially if there is an employer match. After that, look into a Coverdell Education Savings Account and a 529 plan to maximize your education savings potential.
  • Consider grants, scholarships and finance programs. Start researching early, as there are college scholarships available for children as young as 5 years old!
  • Research all college options. In-state public colleges are generally less expensive than private or out-of-state colleges. If an out-of-state college is preferred, check to see if they have reciprocity agreements with your home state.
  • Look into work-study programs. Many schools provide part-time jobs for students to help them pay for school while keeping up with their studies. These programs vary based on a student’s financial needs.

Keep in mind: Assets in retirement accounts don’t affect financial aid

When you complete the Free Application for Federal Student Aid (FAFSA), most money and assets owned by parents impact the student’s eligibility for financial aid. However, the value of retirement accounts (including 401(k)s, Roth IRAs and traditional IRAs) are often not counted when determining the expected family contribution.

With proper planning, there are options to help you prioritize saving for retirement and still financially support your child’s education. Call if you’d like to discuss the most beneficial and tax-savvy options for your situation.



As always, should you have any questions or concerns regarding your tax situation please feel free to call.