Guide your children to financial maturity

Teaching your children about money and finances is easiest when you start early. Here's a quick review of what you should teach your children at each age if you want them to become financially competent adults.

Preschool - Skills to Teach
* Identify coins and bills; learn what each is worth.
* Understand that you can't buy everything; choices are necessary.
* Save money in a piggy bank.

Grade School - Skills to Teach
* Read price tags; learn comparison shopping.
* Do money arithmetic; make change.
* Manage an allowance; use it to pay for some of child's own purchases.
* Open a savings account and learn about interest.
* Participate in family financial discussions about major purchases, vacation choices, etc.

Teens - Skills to Teach
* Work to earn money.
* Budget for larger purchases.
* Learn to use a checking account.
* Learn about investing - stocks, mutual funds, CDs, IRAs, etc.
* Share in financial planning (and saving) for college.

College/Young Adult - Skills to Teach
* Learn about borrowing money (interest, default, etc.).
* Use credit card judiciously.
* Participate in family estate planning discussions.

Knowing about money - how to earn it, use it, invest it, and share it - is a critical life skill. It's never too early to start teaching your children about financial matters.

Have you changed your mind about a Roth conversion?

It turns out you can go back after all - at least when it comes to last year's decision to convert your traditional IRA to a Roth. The question is, do you want to?

You might, if your circumstances have changed. For example, say the value of the assets in your new Roth account is currently less than when you made the conversion. Changing your mind could save tax dollars.

Recharacterizing your Roth conversion lets you go back in time, as if the conversion never happened. You'll have to act soon, though, because the window for undoing a 2012 Roth conversion closes October 15, 2013.

Before that date, you have the opportunity to undo all or part of last year's conversion. After October 15, you can change your mind once more and put the money back in a Roth. That might be a good choice when you're recharacterizing because of a reduction in the value of the account. Just remember you'll have to wait at least 30 days to convert again.

Give us a call for information on Roth recharacterization rules. We'll help you figure out if going back is a good idea.

Back to school calls for an education review

As schools get back in session, it's a good time to check the education tax breaks for which you might qualify. First, there's the "American Opportunity Tax Credit" for a percentage of qualified expenses paid during the first four years of higher education. Second, the "Lifetime Learning Credit" allows a deduction for a percentage of qualified expenses paid for any year the American Opportunity Credit isn't claimed, and it even applies to job-related classes. Third, you may quality for a deduction for interest paid on student loans. Fourth, education savings accounts allow annual nondeductible contributions for children under 18, with tax-free withdrawals for qualifying education expenses.

IRS issues tips for individuals selling their home

In a "2013 Summertime Tax Tip," the IRS reminded taxpayers about the current rules on home sales. Here's a quick review of those rules.

Tax Free Home Sale
The tax law allows the majority of taxpayers who sell their homes to enjoy 100% tax-free profit from the sale.

If you have owned and used your home as your principal residence for at least two of the five years preceding the sale, you may exclude from income tax up to $250,000 of profit if you're single or up to $500,000 if you're married filing jointly. Generally, the exclusion may be used only once every two years.

The law provides that married individuals may exclude up to $500,000 of profits if:
* either spouse owned the home for at least two of the five years before the sale,
* both spouses used the home as a principal residence for at least two of the five years before the sale, and
* neither spouse is ineligible for the exclusion because of the once-every-two-year limit. If one spouse cannot use the exclusion because of the once-every-two-year rule, the other spouse may still claim the exclusion if he or she qualifies. However, the exclusion then cannot exceed $250,000.

Meet the Requirements
The law does contain some relief for those taxpayers who cannot meet the ownership and use rules or who have already excluded gain on a home sale within the two-year limit. If the failure to meet either rule is due to a job change, health problems, or certain other unforeseen circumstances, a partial exclusion may be available. The partial exclusion is calculated based on the fraction of the two years that the requirements were met.

The IRS reminds homeowners that if all the gain in their home sale is excludable under the rules above, they probably don't need to report the sale on their tax return. Only one home sale per two-year period can be excluded, and only a taxpayer's main home qualifies for an exclusion. If a taxpayer has two homes and lives in both of them, the main home is usually the one lived in most of the time.

If you have questions about the tax consequences of your home sale, contact our office.

Factor new limits on deductions into your tax planning

As you begin your year-end tax planning review, keep in mind the return of the limitation on itemized deductions and personal exemptions for higher-income taxpayers. When you're married filing jointly and your adjusted gross income is more than $300,000, the amount you can claim for these two items is reduced. The threshold is $250,000 if you file as a single.

Consider making a charitable gift from your IRA

The tax law signed last January extended the tax break that allows contributions of up to $100,000 from a traditional IRA to a qualified charity. Taxpayers aged 70 or older can make a distribution directly from an IRA to a charity. The amount donated is not included in the taxpayer's gross income and is considered part of the required minimum distribution for the year.

Autumn tax tip

Review your tax deductions for 2013 while there's still time to manage them for a lower tax bill this year. The standard deduction for 2013 is $12,200 for married couples filing a joint return and $6,100 for single taxpayers. If your deductions are close to the threshold, consider accelerating deductible expenses. For example, you can add sales tax paid on a new vehicle to the IRS standard amount when claiming the itemized deduction for state and local sales tax.