April is Financial Literacy Month and Fred Slater, CPA, and Ellen Minkow, CPA, of MS 1040 LLC in New York City are offering some special tax advice.
“It is important to have a year-round budget, and keep finances in check,” said Slater. “An important part of this is year-round tax planning. This can help you prepare for life changes while staying on track to achieve financial goals.”
“For many people, this is planning for college,” Minkow added. “It is important to know if scholarships and grants are subject to federal income tax. If you are a candidate for a degree at an educational institution and receive a qualified scholarship or fellowship that you use for tuition, fees, and required expenses (e.g., books, supplies, and equipment), you need not include the scholarship amount in your taxable income. If, however, your scholarship includes money for room, board, and other incidentals, those dollars are taxable. If you are not a candidate for a degree, your entire scholarship is taxable.”
“For parents there are two education tax credits—the Hope Credit and the Lifetime Learning Credit,” Minkow added. “To claim either credit in a given year, you must list your child as a dependent on your tax return.”
“For overall planning, it is important that you properly estimate your tax and make payments accordingly,” Slater noted. “If an insufficient amount of taxes is withheld, you may end up owing a substantial sum, including penalties and interest, when you file your tax return. Choosing the correct correct withholding amount for your salary or wages is not just a matter of completing Form W-4 worksheets. Two factors that determine the amount of income tax your employer withholds from your regular pay: the amount you earn, and the information regarding filing status and withholding allowances that you provide your employer on Form W-4.”