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Saving for College 101

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Saving for college could be an investment that pays for itself. But for many families, it can also be a huge strain on your budget.

If you’re looking into ways to help fund your child’s educational future, read on for our handy guide.

Building a college savings

There’s no single “best” way to manage higher education costs. It all comes down to your family, your goals and your finances.

529 plan. A 529 plan allows money to grow in a tax-deferred account. It can be withdrawn tax-free for qualified, education-related expenses at colleges, vocational programs and apprenticeships. The funds from a 529 plan may even be applied toward up to $10,000 in student loan debt.

Education Savings Account (ESA) or Education IRA. An ESA allows investments of up to $2,000 (after tax) per child, per year for tax-free growth. The rate at which it grows varies based on the investments you choose, but it generally offers a higher rate of return compared to a regular savings account.

Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA). While savers can use a UTMA and a UGMA to put away money for college with reduced taxes, they can also be used for non-educational costs. Similar to mutual funds, they give parents control of the funds until the child reaches age 18 or 21 (varies by state), at which point they may choose how to allocate the funds.

Remember, the sooner a plan is opened, the more time investments will have to grow.

Tax savings for current students

Once your child is enrolled in higher education, he or she may also want to take advantage of these tax-savings opportunities. Remember, it’s always best to speak with a tax professional regarding your family’s personal situation.

  • American Opportunity Credit. For qualifying students, this credit pays for up to the first $2,000 spent on tuition, fees, books and more. Plus, it’s applicable for all four years of undergraduate studies.
  • Lifetime Learning Credit. The Lifetime Learning Credit gives students a tax credit equal to 20% of their tuition and related expenses up to $10,000. The credit maximum is $2,000.
  • Tuition and fees deduction. Independent students may qualify for a tax deduction of as much as $4,000.

A plan to save

Let’s face it. Higher education costs are just that — high. The average student attending an in-state, public four-year institution spends about $25,707 in a single academic year. The average student attending a private, nonprofit university spends a whopping $54,501 per academic year. While there are student loans, scholarships and financial aid opportunities, any amount saved will help chip away at the steep costs.

Just like retirement and tax planning, figuring out how to pay for college is an important discussion to have with your trusted financial advisor. Need assistance? Count on Magone & Company as a knowledgeable financial resource. Reach out today at (973) 301-2300.

Paying Off Student Loan Debt: What They Didn’t Teach You in College

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Once college ends, graduates prepare for life in the real world. Their focus shifts from writing papers and studying for exams to finding a place to live and beginning a new career. But just like the memories of college and the many lessons learned, there’s one more thing that will stay with them for years to come: student debt.

If you’re feeling the stress of student loan debt, here are some tips to help you deal with this often overwhelming financial obligation:

  • Make additional payments. Sure, it might not be an easy thing to pull off, especially when you’re just starting out in the job world. But if you can swing it, extra payments here and there can have a huge impact on the time it takes to settle your debt, as well as the money you’ll save in the long term. Make sure your lender applies the additional amount to the principal balance to reduce the amount of interest you’re paying.
  • Set up automatic payments. Many lenders will offer discounted interest rates for using autopay. It may not make a substantial difference — perhaps a few hundred dollars — but it’s something.
  • Start a dedicated account for student loan payments. Creating a fund reserved for paying off student debt ties into another tip: budgeting. When you get paid, have a portion automatically deposited into this account, and don’t touch it. If you keep this account as a “walled garden”, you’re more likely to resist the temptation to use it for other interests. Shop around for high-interest savings accounts to give your money a boost.
  • Seek out companies or careers that offer student loan forgiveness incentives. Some government and nonprofit agencies, for example, may offer student loan forgiveness programs for employees. And after working for a certain amount of time, you may qualify to have your student loan balance canceled.
  • Refinance — with care. Refinancing your debt can be a good option if your loan carries a high interest rate, or if you have multiple loans that you want to consolidate. Bear in mind, if you refinance a federal student loan, you give up eligibility for government student loan forgiveness or other potential money-saving options.

When it comes to student loans, pitfalls can arise when you don’t know all the rules for managing long-term debt. Advice from a knowledgeable financial resource can save you headaches, complications and most importantly, money as you begin your post-college journey.

 

Perks for Parents: Tax Tips to Help Families Maximize Their Savings

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Tax season is officially upon us, and there’re no escaping it. The IRS has its hand out to collect a portion of your taxable income. The good news? If you have children, there are credits and strategies that can help you save more of your money this year and in years to come.

Parents, be sure to take advantage of the following opportunities that apply:

Open tax-advantaged accounts. Does your employer offer a Health Savings Account?

Specifically designed for medical expenses, you can enjoy several tax advantages by making tax-deductible contributions to your account, which reduces your taxable income. Plus, any interest or earnings on the account are tax-free, and withdrawals made for qualified medical expenses are also tax-free.

If you’re thinking ahead to paying for your children’s higher educations, a 529 plan allows money to grow in a tax-deferred account. It can be withdrawn tax-free for qualified, education-related expenses at colleges, vocational programs and apprenticeships. The funds from a 529 plan may even be applied toward up to $10,000 in student loan debt.

Claim credits exclusively for families. Eligible New Jersey residents can boost their refund by claiming a Child Tax Credit on their NJ-1040. For tax year 2023, you may receive up to $1,000 for each dependent child who’s five or under.

Have kids in daycare? If you pay for child care while working or looking for work, you might be able to claim the Child and Dependent Care Credit on your return. This gives you a tax break on qualified expenses like summer camp or before/after school care. Kids must be under the age of 13 to qualify, unless they’re incapable of caring for themselves due to physical or mental conditions. Keep in mind, you must have a New Jersey taxable income of $150,000 or less to qualify.

Another valuable tax credit for families is the Earned Income Tax Credit (EITC). The EITC assists low and moderate-income families with a refundable tax credit based on your income, filing status and the number of qualifying children you have. Depending on your circumstances, the EITC can result in a significant tax refund.

Maximize deductions. Families can take advantage of several deductions to lower their taxable income. One common deduction for families? Mortgage interest. If you own a home and have a mortgage, you can deduct the interest you pay on that loan. When you’re in the early years of your mortgage, your savings can be substantial as the majority of your payments go toward interest. Additionally, families can deduct state and local taxes, including property taxes, which can further reduce your tax liability.

Have dependents pursuing higher education? There’s also a deduction for qualified education expenses for eligible students. This deduction allows you to deduct up to $4,000 of qualified expenses, such as tuition and fees. Parents may also deduct interest payments on certain student loans from qualified lending institutions.

Planning to save can really pay off

With a little bit of planning and knowledge, you can help your family keep more of your hard-earned money. Taking steps to optimize your tax situation is an important aspect of your family’s overall financial planning. Not sure where to start? The professionals at Magone & Company can help. Reach out to learn more.

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.

CPA vs. Tax Preparer: What’s the Difference?

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Once the calendar flips to a new year (and you’ve barely had a chance to recover from the busy holiday season), Uncle Sam will come knocking at your door to get his share of your taxable income.

Tax season will be here before you know it. But unless you’re a mathematical savant who revels in the joy of crunching numbers and interpreting tax laws, chances are you lean on the sturdy shoulders of a tax professional.

While both Certified Public Accountants (CPAs) and tax preparers are professionals authorized to prepare and file tax returns, their training, certifications, expertise and scope of services vary greatly. So who’s the right candidate?

Here’s a quick rundown to help you hire the ideal tax professional:

Tax preparer

Tax preparers have no college degree requirement, and many lack tax-specific training. In fact, the only pre-requisite for obtaining the required (PTIN) to file taxes on your behalf is the completion of a simple form — one that takes about 15 minutes to fill out.

Why choose a tax preparer? If you or your small business only need assistance filing simple tax returns, they’ll typically apply the most common deductions and tax credits to your return — things like deductions for educational expenses and health care costs, as well as earned income or retirement tax credits. But what they may not do is research more unusual tax credits and deductions.

You can count on them to:

  • Collect relevant financial records and input applicable tax data
  • Determine basic deductions, refunds and payments using federal state and local tax laws
  • File documents with the IRS
  • Offer best steps to take to reduce your tax liability for the coming year

CPA

CPAs, on the other hand, must undergo extensive education and ongoing training to obtain their certification and ensure they’re responsible fiduciaries:

  • Completion of bachelor’s degree program, including 150 credit hours with a concentration on accounting, business and general ed
  • Passing of the AICPA (American Institution of Certified Public Accountants) exam, covering business concepts; accounting and reporting; auditing and attestation and regulations, within 18 months of completing their undergrad degree
  • Licensure by their individual state(s)
  • Annual completion of 40 hours of continued education

Because they have advanced training, CPAs are authorized to represent their clients before the IRS. They also tend to have greater insight into complex tax positions and are well-equipped to assist clients well beyond the tax return, with investments, audits and financial planning.

In addition, CPAs can provide the following services:

For individuals:

  • Estate planning expertise
  • Wealth preservation
  • Budget management and analyses
  • Investment strategy and asset allocation
  • Charitable giving strategies

For businesses:

  • Bookkeeping duties
  • Forensic accounting
  • Cost segregation analyses
  • Financial reporting
  • Audit and assurance services

The choice between a CPA and a tax preparer depends on your unique financial circumstances. Whether you’re a self-employed individual seeking comprehensive financial guidance, a growing business that could benefit from tax planning, or a salaried executive with stock options, there is a professional who can meet your needs.

If you’re looking for a trusted CPA, the professionals at Magone & Company will consider every deduction, break and incentive in preparing your return. Call us today at (973) 301-2300 to schedule a confidential consultation.

CPA Firm Checklist: Choosing the Right Professional for Your Tax Needs

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As a hardworking taxpayer, it can be challenging to navigate the complexities of the tax system, while ensuring you’re making the most of a favorable tax situation. That’s where a Certified Public Accountant (CPA) comes in.

What sets CPAs apart from other tax specialists? CPAs are licensed, certified professionals who have achieved specialized higher education and extensive training in tax laws, regulations and preparation. They’re also required to complete annual Certified Professional Education (CPE) to maintain their certification.

But does that mean a CPA is the right fit for you? Here are some factors to consider when choosing a tax professional:

Experience and specialization. How long have they been in practice? Do they have any additional certifications? How have they helped other clients with similar challenges? These factors can give you confidence in their ability to provide you with accurate and reliable tax advice. Ask for client testimonials and referrals to get a better sense of their track record and performance.

Look for CPAs who specialize in areas that align with your needs. For example, if you’re a dental practice owner, you may benefit from a firm with experience providing tax services to similar businesses in your industry.

According to Magone & Co client and business owner, Kristi T., “In addition to filing our tax returns, the advice and guidance they provide for my businesses at a CFO level is truly valuable. The team is professional, pleasant, knowledgeable and proactive to help me with my business needs.”

Communication. Effective communication is key to any professional relationship. You want a firm that values open and transparent communication, actively listens to your concerns, explains complex tax concepts in laymen’s terms, and provide personalized advice that’s tailored to your needs. (Remember, you’re not the tax expert; they are.)

Availability. Consider a firm’s responsiveness and availability. Are they prompt in returning your calls and emails? Do they schedule regular meetings to review your financial situation and discuss any changes? Is there a set timeline of when your needs will be met? It’s essential to make sure all parties are on the same page, so you feel assured they’ll be there to assist you.

Security. All CPA firms should have proven strategies and procedures in place to safeguard your personal information. Is there a secure process for uploading documents? Are there encryption systems to regulate access to the data? Be sure you have peace of mind knowing who has access to your files.

For example, Magone & Co client, Nadja D. shares, “I currently reside outside the U.S. and have to coordinate two tax returns. I love the process that they have in place as I can securely submit everything electronically, which is a huge help. It’s a very well-organized office.”

Pricing structure. Get a clear picture of the value a CPA firm delivers and your potential return on investment. Inquire about their pricing structure and services included in their fees. Does the firm wish to build an ongoing consultative relationship, or do they seem solely interested in transactional services such as tax return preparation?

Consider the value of a financial and tax team that knows your unique situation, understands your priorities, meets with you regularly and can proactively seek out opportunities to lower your tax burden and get you closer to your financial goals faster.

For example, if you fall into the “sandwich generation,” you may find yourself simultaneously caring for aging parents while putting kids through college. CPAs who also hold the CFP financial planning designation can help you sort out strategies that don’t put your own retirement at risk.

The bottom line

Look for a firm that treats you as more than just a number — one that has a genuine interest in serving you. We’d love to see if Magone & Company is the right fit for you, so reach out today for a consultation.

Campania Wealth VP Reaches Career Milestone with Professional Certification

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Nicholas Magone, VP for Campania Wealth Management, has earned the designation of Certified Financial Planner (CFP®) from the Certified Financial Planner Board of Standards.

Campania Wealth Management is Magone & Company’s wealth management partner.

Long considered the gold standard for wealth managers, the six-hour CFP® exam tests a candidate’s ability to apply a wide range of financial planning knowledge in real-life situations. Of the 300,000+ financial advisors in the U.S., less than 30% achieve CFP® status.

“It’s akin to successfully passing the bar exam for attorneys,” says Campania Wealth President & CEO Nick Magone, himself a CFP®. “Just over half of candidates pass on their first attempt, and we’re proud to congratulate Nicholas on this career achievement.”

Nicholas has worked extensively in all facets of wealth management, from tax-efficient investment and estate planning strategies to college planning, life and long-term-care insurance, and lifestyle budgeting/retirement income generation. He also holds the designation of Chartered Retirement Plans Specialist (CRPS®).

Learn how Campania Wealth Management and Magone & Company work together on a holistic approach to financial wellness for individuals, businesses and families.

Securities Offered Through: TFS Securities Inc., Member FINRA/SIPC, A Full Service Broker Dealer located at: 847 Broadway, Bayonne, NJ 07002 • 201-823-1030. Investment Advisory Services Offered Through: TFS Advisory Services, a division of TFS Securities, Inc.