Families of Those with Disabilities Can Save on Qualified Expenses
Section 529 of the Internal Revenue Code has been around nearly 20 years now, so most taxpayers with children are aware of the advantages of investing in a “529 Plan” for tax-advantaged savings for future college costs. Though enacted as part of the federal tax code, these plans are administered by states, and many states, such as New York, even offer a tax deduction for investing in them.
A new version of 529 plans is now becoming available. On December 19, 2014, the Achieving a Better Life Experience (ABLE) Act was enacted as section 529A of the Internal Revenue Code. The ABLE Act authorized states to establish programs allowing taxpayers to save and invest funds for disability-related expenses of eligible individuals (defined below).
Even though federally enacted in 2014, it takes states time to adopt the Act and get their programs up and running. The New York ABLE Act became effective on April 1, 2016, but is not yet available for taxpayers to invest in. New York expects the program to launch by year end 2016.
529-ABLE accounts are designed to support individuals with disabilities. To be eligible, an individual must have a disabling condition or blindness that occurred before reaching the age of 26. An account is established in the name of the beneficiary (the disabled person) or his/her parent, legal guardian, or representative, and while there is no deduction for contributions to the plan, earnings on funds invested grow tax-free as long as used on qualified disability expenses of the beneficiary. Qualified expenses include the following:
- Employment training and support
- Assistive technology and personal support services
- Health, prevention, and wellness
- Financial management
- Legal fees
- Funeral and burial expenses
- Other expenses approved by the Treasury
It is not necessary that the beneficiary currently be under the age of 26. Any age may be a beneficiary, as long as the condition was diagnosed prior to reaching age 26. When opening an account, a certification process must be completed to ensure the beneficiary qualifies as an eligible individual.
Even though the account is held in the name of the beneficiary, the intention is to supplement any Federal/State aid the beneficiary may be receiving, such as Medicaid, SSI, and even private insurance. This is important, because the funds in a 529-ABLE plan are generally not included in total assets for federal means-tested benefits. However, if the plan balance exceeds $100,000, distributions to pay for housing will be considered for SSI.
A beneficiary is allowed to have only one ABLE account, and there is a cap on the amount contributed each year, equal to the annual gift tax exclusion (currently $14,000). Excess contributions will be subject to a 6% excise tax, and any distribution made for non-qualifying expenses will be subject to a 10% penalty. Each state will set its own limits on how much can accumulate in the plan. In New York, the plan balance is limited to $375,000. Once the account balance reaches $375,000, earnings will still grow tax-free, but no additional contributions may be made until the account balance falls below that level.
Upon death of the beneficiary, the remaining funds will be used to first pay any outstanding qualified expenses. Any excess remaining will be repaid to the state, as creditor, for reimbursement of any expenses paid by Medicaid for the beneficiary from the date the account was established. Finally, any remaining funds will be distributed to the deceased’s estate or a designated beneficiary. Any portion of that balance that represents earnings on the account will be taxed as investment earnings.
The passage of the ABLE Act provides a long overdue tax-advantaged way for families of those with disabilities to save for the costs of caring for those individuals. For help navigating what the Act can mean for your family, contact us.View full article
2013 may be the last opportunity for taxpayers to take advantage of bonus depreciation, an enhanced Code Section 179 expensing deduction, and Code Section 179D deduction for energy efficient improvements to commercial buildings.
By: Jennifer A Birkemeier, CPA
Senior Manager, CSP360
Taxpayers considering making significant capital investments in property in the near future should consider making such investments by December 31, 2013 to enjoy these lucrative tax benefits. These tax benefits may allow the entire cost to be expensed for the 2013 tax year instead of a deduction claimed over a period of years under the MACRS depreciation rules. Given the tax increases and new taxes effective beginning with the 2013 tax year, the ability to deduct capital investments in property could result in a significant tax savings.
Bonus depreciation, as defined in Code Section 168(k), was first introduced in 2001 and has been extended & enhanced several times over the past 12 years. This tax incentive allows for a percentage of an asset’s basis, currently 50%, to be expensed immediately while the remaining basis is depreciated over the MACRS recovery period. If the law is not extended, bonus depreciation will not be available for property placed in service after December 31, 2013. To qualify for bonus depreciation, the asset must qualify as new property that has not been previously used by another taxpayer.
Code Section 179 currently allows a taxpayer to expense up to $500,000 of qualifying property placed in service during the 2013 tax year. The property must be personal property and the maximum amount of qualifying property that a taxpayer may place in service during 2013 is $2,000,000 before the deduction begins to phase out. Beginning with the 2014 tax year, the Code Section 179 deduction will be lowered to $25,000. The ability to expense up to $500,000 has helped many taxpayers decide to proceed with asset acquisitions in 2013.
Taxpayers have the opportunity to receive immediate tax deductions for energy efficient improvements that they have made to a building since 2006. Code Section 179D provides a deduction of up to $1.80 per Square Foot for energy efficient lighting, HVAC and building envelope improvements that a taxpayer has placed in service by December 31, 2013. There is also an opportunity to review improvements since2006 and claim deductions that a taxpayer may have missed. There are several requirements to receive the Code Section 179D deduction that include receiving a specific certification from a qualified individual. In addition, for government owned buildings the deduction can be allocated to the architect or engineer who is primarily responsible for the design of the energy efficient improvements.
CSP360 is a subsidiary of Freed Maxick, CPAs in Buffalo NY. Freed Maxick CPAs is a Top 100 accounting Firm, and one of the leading providers of Cost Segregation and consulting services. Our philosophy is to offer clients a 360 approach to a taxpayer’s fixed assets; pairing engineering and LEED specialists with accountants for a truly unique tax advisory team. Since 1995, our in house team has provided specialty studies to CPAs in a private label arrangement. Products include Cost Segregation, Code Section 179D Energy Studies and Code Section 263(a) repair studies. CSP360 is Circular 230 compliant and has proven methodologies that are sustainable in the event of an IRS examination. To learn more about our unique approach click here.