Indiana529 Plan: Save for College and Get a Tax Credit
Mike Sylvester • Aug 28, 2024
Many of our Indiana clients take advantage of the Indiana CollegeChoice 529 plan. Note, the plan recently changed names and is now called the Indiana529.
The Indiana529 plan is beneficial for those clients who:
- Have Indiana income tax liability.
- Want a tax-advantaged way to save for college.
The maximum amount of Indiana tax credit allowed is 20% of the contribution, and for tax credit purposes, the maximum annual contribution is $7,500.
From a tax perspective, the advantage of an Indiana529 plan is that you can qualify for an Indiana tax credit of up to $1,500 per year. Please note, you must have at least $1,500 of Indiana income tax liability each year in order to qualify for a tax credit of $1,500.
Please remember, tax credits are superior to tax deductions. A tax credit lowers your tax liability dollar for dollar.
You do NOT receive an Indiana tax credit if you contribute to a 529 plan run by a state other than Indiana.
Please contact the partner handling your account if you want to learn more about the tax advantages of contributing to an Indiana529 plan. As always, there are a lot of rules, and the money needs to be used for specific purposes, generally through an accredited college.
Mike Sylvester, CPA
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The Corporate Transparency Act (CTA) and Beneficial Ownership Information (BOI) reporting rules are important, and you need to take them seriously. The rules are new this year and apply to those of you with an LLC or a corporation registered with The Secretary of State. The Financial Crimes Network (FinCEN) can charge you up to $591 a day in civil penalties, up to two years in prison, and another $10,000 in criminal penalties. Brent Bracht is the partner overseeing this, and Michelle Felger and Josie Ross have been working hard to file these forms for our clients who hired us to handle this. We have almost 300 of these filed and billed to our clients. We have another 50 in the process. We have another 75 clients from whom we are waiting for information. We have many clients to whom we mailed multiple packages via the USPS. We need to hear back from you very quickly. If you own a corporation or an LLC and have not worked with us to get your forms filed or provided us with a signed and dated engagement letter option out of us providing this service, we need to hear from you very quickly. Please reach out to the partner who handles your account today. Mike Sylvester, CPA
It is very hard to believe October is almost in the books. It is tax planning season at SBS CPA Group! Many of our clients hire us to prepare tax projections and meet with us to plan on how to lower their income taxes over the next couple of years. We enjoy this type of work, and it is important to ensure you have paid in enough taxes to avoid penalties and interest. Further, many people really want to minimize the income taxes they pay to various government organizations. If you want to hire us to handle this, please reach out to the partner overseeing your account and we will get moving on this. Mike Sylvester, CPA
Many of our Indiana clients take advantage of the Indiana CollegeChoice 529 plan. Note, the plan recently changed names and is now called the Indiana529. The Indiana529 plan is beneficial for those clients who: Have Indiana income tax liability. Want a tax-advantaged way to save for college. The maximum amount of Indiana tax credit allowed is 20% of the contribution, and for tax credit purposes, the maximum annual contribution is $7,500. From a tax perspective, the advantage of an Indiana529 plan is that you can qualify for an Indiana tax credit of up to $1,500 per year. Please note, you must have at least $1,500 of Indiana income tax liability each year in order to qualify for a tax credit of $1,500. Please remember, tax credits are superior to tax deductions. A tax credit lowers your tax liability dollar for dollar. You do NOT receive an Indiana tax credit if you contribute to a 529 plan run by a state other than Indiana. Please contact the partner handling your account if you want to learn more about the tax advantages of contributing to an Indiana529 plan. As always, there are a lot of rules, and the money needs to be used for specific purposes, generally through an accredited college. Mike Sylvester, CPA
The largest expense Americans pay is taxes. We pay federal income taxes, Social Security taxes, Medicare taxes, sales taxes, and the list goes on and on. The income tax code grows larger every year. Indiana has really made its income tax code more complicated, and I remember when Indiana had a very simple tax code; that is no longer the case. Indiana adds 10-25 new tax provisions every year. We file your income taxes each year. The tax code becomes more complicated each year, and the amount of time we spend doing your taxes increases due to the complications and the fact that the rules are constantly changing. We are not focusing on tax planning when we complete your annual income tax returns; instead, we are filing the necessary forms to keep you compliant with the current tax code and to calculate the taxes you owe or the refunds you are due for the prior year. More of our clients should be trying to lower their income tax burden over the course of their lives. More of our clients should hire us to assist them with tax planning. Please reach out to the partner who handles your account if you want to hire us to work with you to minimize your income taxes. Of course, we charge separately for this! September 16th is the corporate deadline this year, and we will be busy between now and September 16th. Tax planning season is September 17th – December 15th, 2024. Please reach out to the partner who handles your account if you want to hire us to help you minimize your tax burden. Mike Sylvester, CPA
If you own an LLC or a corporation, you likely have to file an initial report with the Financial Crimes Enforcement Network (FINCEN) before December 31, 2024. This new Federal report covers Beneficial Ownership Information (BOI) and applies to almost all of our clients. This law was passed by Congress and is intended to combat money laundering. The new rules are complicated and will require businesses to file initial reports with the Financial Crimes Enforcement Network and to further update those reports in certain circumstances. The penalties for not filing the required reports by December 31, 2024, are severe: Penalty of up to $591 per day, capped at a total penalty of $10,000, and Up to two years in prison All of our clients must sign and date a separate engagement letter for each LLC and corporation they own. Due to the seriousness of the fines and jail sentences, all our clients must either sign and date the engagement letter hiring us to file the initial report or sign and date an engagement letter certifying they will handle the report or hire a third party, such as an attorney, to file these reports for them. Further, we will only file these reports for Indiana companies, and we will either handle both the Indiana Secretary of State entity renewals and the FINCEN BOI reports, or we will handle neither. We will be spending hundreds of hours filing these reports for most of our clients who own businesses between now and November 30, 2024. We charge a minimum of $250 per report, and if you sign up for our BOI service, please remember we will also be renewing your entities with the Indiana Secretary of State before they expire, which incurs its own separate charge. We have approximately 100 reports completed, and we will complete about 300 more. When we reach out to you by email, please read everything carefully and send us everything we need quickly. Michelle Felger is working on initial BOI reports for our clients, and we are collecting driver’s license information from you so we can file your required initial reports. The only people we need anything from now are those we are contacting. The Federal Government expects 32.6 million initial reports to be filed in 2024 and projects that it will take business owners and the professionals they rely on well over 119 million hours in 2024 to deal with these far-reaching new requirements. Mike Sylvester, CPA
The Internal Revenue Service (IRS) announced new information regarding the Employee Retention Credit (ERC). Please talk to the partner handling your account if you hear from any salesperson trying to convince you that your business qualifies for the ERC or any other tax credit. You almost assuredly do NOT qualify. In fact, most of the Promoters will tell you NOT to talk to your CPA because CPA’s do not understand the credit, and this is laughable. The June 20 th , 2024, announcement from the IRS updates all of us on what is going on and you can learn more here: https://www.irs.gov/newsroom/irs-employee-retention-credit-compliance-effort-tops-1-billion-threshold-since-fall-voluntary-disclosure-program-suspended-after-march-22-special-withdrawal-program-remains-open-as-audits In summary: The IRS has analyzed about one million ERC claims that it received by 9/14/2023 and it feels that: 10% - 20% are very high risk and likely fraud. 60% - 70% have unacceptable risk and the IRS needs to do more due diligence to verify. 10% - 20% are low risk and currently these are the claims the IRS will process next. Further, the IRS says they will process these claims at a dramatically slower case than before. The IRS is promising to go after those who sold and promoted fraudulent ERC claims and is focusing on the Promoters of these schemes. The IRS has received another 400,000 ERC claims since 9/14/2023. It is currently not going to work on any of those claims and will focus on the oldest claims received first. Please contact your partner if anyone tries to sell you on a tax credit or free money that sounds too good to be true. Mike Sylvester, CPA
Email scams are everywhere. Please be careful. Please take the time and effort to protect yourself and educate yourself. I get multiple scam emails every week. Most of them claim to be from potential new clients. Email providers and virus protection programs are more and more often flagging valid emails as spam or junk mail; because they are trying to prevent scams. It is very important that you check your junk mail and spam once a day. This is so important; that everyone at SBS CPA Group, Inc does this once a day! Email is our primary means of communication with clients; however, we will call you if an email from you is suspicious and you should call us at 260-407-5000 if you think one of our emails looks suspicious. We cannot emphasize enough how important this is! Please take this very seriously! Mike Sylvester, CPA
This is a complicated topic and one best discussed with the partner handling your account. There are many times a business should have life insurance on owners. The rules are complicated, and this post is discussing the general rules only. We most often see life insurance with companies with more than one owner. The company often takes out life insurance on all owners as part of a buy/sell agreement. It is important the buy/sell agreement has a detailed method for valuing the business in the event of the death of one of its owners. Seriously, ensure this is well written and part of your legal agreements. For example, maybe the business has three equal owners. Maybe the business value is determined to be cash basis revenue over the last 365 days. Maybe the owners want to make sure that if one owner dies: Their estate receives a fair and pre-determined amount for their business interest. AND Then the deceased owner no longer owns any of the company. Each situation is different; often what is done is the business takes out some type of level term life insurance (level term means even payments over the course of the policy) and the company is named the beneficiary of at least enough of the policy to cover the value of the business. Sometimes over time the beneficiaries change, and you need to check your beneficiaries and make sure they are correct on everything you own. Sometimes the amounts paid to the business change as a business grows. Sometimes the business outgrows the amount of life insurance you have and more must be put into place. Please remember life insurance becomes far more expensive as you age and as you age you may have a health event that makes you uninsurable. In most cases, the life insurance premiums are a non-deductible business expense. Again, this is complicated. Most of the clients we have with life insurance have life insurance only for the owners and it is for the reasons outlined above. This is a non-deductible business expense. That being said, if you follow all of the rules, the life insurance proceeds paid out to the company upon death are also not taxable. This is a big deal! To make the proceeds not taxable on life insurance proceeds: The business must treat the premiums as a non-deductible business expense AND The business must annually report the life insurance to the IRS on Form 8925 AND Various consent forms and disclosures must be made in writing. Life insurance is a big deal. If you have questions, please reach out to the partner handling your account. Mike Sylvester, CPA
Email has become the primary form of communication for many people. We use email at SBS CPA Group, Inc. for much of our communication with clients. Unfortunately, there are a very large number of scammers who are using email as a means of scamming people. We have seen a growing number of email scams targeting all the employees at SBS CPA Group, Inc. Everyone really needs to educate themselves and understand phishing scams. Phishing is when criminals use scam emails, text messages or phone calls to trick their victims. The aim is often to make you visit a website, which may download a virus onto your computer, or steal bank details, or steal other personal information. The number of email scams has risen dramatically. This in turn, has caused email service providers to identify even more email as junk email. When your email service provider identifies something as spam, it diverts the email into a separate junk email folder. Sometimes your email service provider identifies good emails as junk email. This seems to be happening more and more often. You really need to check your junk or spam email regularly. In fact, in our office, all of us check our junk email daily. We have recently seen cases where we sent emails to our IT service provider that have gotten captured in their junk email. If this can happen to an IT company, it can happen to anyone. I recently had a client who was corresponding with one of our staff via email. The second email we sent this client on the same day was captured by the client’s spam filter and placed in the junk email. We have no idea why and there were no attachments. The moral of the story is this, please check your junk email regularly and please be wary of scammers. Mike Sylvester, CPA
This post will talk about who relies on Social Security, how your benefits are calculated, how much income the program is designed to replace, and the financial condition of social security. It saddens me that Congress cannot act like adults and make bipartisan changes to this important program. I am pretty sure they will come together 3-6 months before the program cannot pay full benefits and do something very similar to what was done in 1983 and it will again be very unpopular. Who relies on Social Security in retirement? The most recent data I have seen is from the Social Security Administration (SSA) itself. It was published in 2021 based on 2015 data. Per the SSA using 2015 data: Social Security Benefits represent about 30% of the income for people over age 65. Note this means the program is working as expected since a lot of people are working after 65 due to increases in life expectancy. 51.8% of those aged 65 or older rely on Social Security for half or more of their income. 24.7% of those aged 65 or older rely on Social Security (SS) for 90% or more of their income. This is a very serious problem. The percentage of reliance on Social Security by IRS income quintile is terrifying. The 1st quintile is the lowest income 20% of income tax returns filed. For the 1st quintile, 86.6% rely on SS for half or more of income and 64.1% rely on it for 90% or more of income. For the 2nd quintile, 82.3% rely on SS for half or more of income and 47.8% rely on it for 90% or more of income. For the 3rd quintile, 62.7% rely on SS for half or more of income and 13.8% rely on it for 90% or more of income. For the 4th quintile, 24.8% rely on SS for half or more of income and 1% rely on it for 90% or more of income. For the 5th quintile, 2.2% rely on SS for half or more of income and none rely on it for 90% or more of income. There is zero chance Congress can allow Social Security benefits to be cut unless it is only for the very wealthy and I do not think they should even do that. Instead, taxes and the retirement age will be raised and this will likely happen in 2035 because Congress never plans and waits until we are in crisis to fix anything like this. Their fix will be wildly unpopular. Note if fixed today the results would be less draconian… How are Social Security benefits calculated? It saddens me how few people understand this. This should be emphasized in K-12, in college, by employers, and by the government itself. I am very angry the Social Security Administration largely stopped mailing statements in 2011. I really think this was criminal. Everyone should know what their expected social security benefits are and I think annual statements should be mailed. Further the statements should emphasize the long-term fiscal insolvency of the program. Please go and setup an online account and check it every year on your birthday. First off, the social security benefit formula is progressive, meaning those who make less have a much higher percentage of their income replaced in the form of benefits. The Social Security program was designed to benefit lower income individuals and it does that. Further in 1983 up to 85% of social security income became taxable to the Federal government depending on other income and this makes the program even more progressive. Note I have clients who complain about this every year and the law was passed 41 years ago. You qualify for Social Security benefits if you accumulate enough credits. The amount needed for a credit in 2024 is $1,730. You can earn up to a maximum of 4 credits per year. The amount needed to earn 1 credit automatically increases each year when average wages increase. Your benefits are calculated based on your average indexed monthly earnings (AIME), your primary insurance amount (PIA), and the age at which you choose to receive benefits. Your AIME is a calculation based on your 35 best years of income subject to social security tax. The SSA indexes your income subject to social security tax and adjusted each year for inflation. You get credit for your best 35 years indexed to inflation. Any additional years of income are lost and not included in the calculation. If you do not have 35 years of income then zeros are averaged in. AIME is your average MONTHLY earnings subject to social security tax, indexed for inflation, over your best 35 years of earned and best is best in inflation adjusted terms. Note this calculation covers your entire life. It is very difficult to change these numbers. Those of you who own Subchapter S Corporations may well have less in benefits at retirement depending on how much you are paid in wages each year. That is OK as long as you invest the savings due to being an S Corporation. If you are retiring this year, and your average annual income subject to social security tax is $72,000 in 2024 dollars your AIME is $6,000. The next part of the calculation is what benefits low-income earners and makes the program progressive. Note with the demise of defined benefit retirement plans the program needs to be progressive. Next your Primary Insurance Amount (PIA) is calculated and the formula changes every year due to inflation. For 2024, your PIA will be the total of: 90% of the first $1,174 of your AIME Plus, 32% of any amount over $1,174 up to $7,078, Plus15% of any amount over $7,078. This is rounded to the nearest dollar. If you retire in 2024 and your AIME is $6,000, your PIA is: 1056.5 + 1,544.32 = $2,601. So, you are paid $2,601 if you retire at full retirement age minus what you pay for Medicare premiums. For planning purposes in 2024 you clearly want an AIME of at least $1,174 since you get 90% of this amount in the PIA calculation. Next you might want to have an AIME of $7,078 because above $7,078 you only get 15%. You should go online, setup a social security account and look at your lifetime earnings. Make sure they are correct. Far easier to fix now rather than later. Remember income subject to social security tax is not all income. Interest, dividends, S corporate profits, etc. is NOT subject to social security tax and does not count in this calculation. Your PIA is the benefit you will receive if you are at full retirement age. If you start drawing benefits early you will get less and if you wait until age 70 you will get more. This is something you need to consider carefully and it is more complicated if you are married. Please analyze this carefully when you start drawing benefits. It is extremely important. Too many people draw benefits too early. Social Security has great calculators online and you really should setup a social security account today. How much income is Social Security designed to replace? Social Security was passed into law in 1935. The program was designed to replace 1/3 of a worker’s income in retirement. The life expectancy in the United States in 1935 was 62. Today it is 79. This is the primary reason the Social Security program is in financial trouble. Life expectancy has increased by 17 years! The original Social Security documents talk about a three-legged stool where 1/3 comes from SS, 1/3 from employer defined benefit plans, and 1/3 from savings. Defined benefit plans are no longer common. The government did a terrible job ensuring companies properly funded them. Further, private businesses realized they were expensive and switched to plans where employees contribute. This shifted a significant amount of retirement planning onto individuals. Note I do a lot of tax returns for retirees with defined benefit pension plans. Each year fewer and fewer people will receive retirement benefits from defined benefit plans. The last major changes to Social Security were made in 1983 and were very bipartisan. Further they were very unpopular. Social Security could not have paid full benefits in late 1983 and changes were made that will extend the program solvency to about 2035. The Social Security funding formula was changed in 1983 and the program was changed to replace 40% of income subject to social security tax rather than 1/3 of total income. Note, actuarily the program is designed to replace as much as 55% of income for the working poor and 20-25% for those who earn close to the annual Social Security wage cap. Note the program replaces far less than 20% for very high earners. Note many financial planners say that you need to replace 80% of your total income in retirement (Not income subject to social security taxes). Social Security is designed to replace 40% of your income that was subject to social security taxes. For people at the lower end of the income spectrum a much higher percentage of their income is subject to social security taxes. The financial position of Social Security is grim and projected to get a little worse over time. According to the 2024 Social Security Trustees Report with no changes to the program the following benefits will be paid out: Through 2034 100% of benefits paid 2035 83% of benefits paid 2098 73% of benefits paid Under current law if changes are not made benefits are cut across the board. This is built into existing law and would take an act of Congress to change. There are many ways to fix the solvency of Social Security program; however, Congress will not get off their behinds and come up with a bipartisan solution to fix the problem until 2035. Anything Congress does will be deeply unpopular and that is why they will do nothing until the crisis is at hand. What irritates me is Social Security is a very necessary program and the sooner it is brought into solvency the better. The sooner changes are made the less drastic they need to be. Yet Congress does nothing except both sides bring up extreme ideas and attack each other. Per this report, the easiest way to fix the solvency of the program for the next 75 years is to increase Social Security payroll taxes from the current 12.4% (Half paid by employer) to 15.8% (Half paid by employer). If this change was made as of 1/1/25 the Social Security program would be solvent and able to pay full benefits through 2098. This would increase employer payroll costs by 1.7% on all wages up to the Social Security cap. Further it would decrease employee pay by 1.7% on all wages up to the Social Security cap. The self-employed would have to pay 3.4% more since they pay both sides. This will never happen because members of Congress have no spine. Younger Americans are convinced they will not receive Social Security benefits when they retire or at least think they will get less than the promised amount. Older Americans vote. All members of Congress care about is getting re-elected. There is zero chance Congress is going to allow benefits to be cut. That being said, the changes Congress has to make will be very unpopular. If I had to guess, and this is a total guess, I think something like the following will happen in 2035, and which major political party is in power will influence this and this guess assumes divided government which is what we generally have. I think the retirement age to collect Social Security will be increased. Life expectancy is up 17 years from when the program was started. I think early retirement age will be slowly increased to 65 from 62. I think full retirement age will be slowly increased from 67 to 70. Note these changes will be deeply unpopular and the AARP will go berserk. The Democrats will oppose this and the Republicans will insist on it. Note this change would fix 45% of the 75-year funding shortfall. In the end, this is cutting benefits. Payroll taxes honestly need to be increased. Back in 1983 Social Security taxes were 10.8% (Half employee and half employer) and over the next seven years they were slowly increased to 12.4%. They have been 12.4% since 1990. I might guess they increase them by another 1.6% in total, half employee and half employer. Likely done over an 8-year period. The Chamber of Commerce and NFIB will go berserk. Republicans will oppose this and Democrats will insist on it. Note this change would fix 45% of the 75-year funding shortfall. In the end this is raising taxes. Note the above two paragraphs are very reasonable compromise. The other 10% of the funding shortfall would be fixed by a large number of minor changes. Maybe instead of making Social Security income 85% taxable they will just make it taxable 100%. Maybe they will adjust the benefits formula so the annual benefit increases are less. Maybe they will increase the social security wage cap. If we do not have divided government then the fixes will be more extreme with the Republicans cutting benefits more if they are in power and the Democrats raising taxes more and means testing benefits. Social Security benefits are vital. Congress has failed entirely to ensure this program is sufficiently funded. We highly suggest our clients communicate with their CPA before they draw social security benefits. If you have specific questions about Social Security benefits you can talk to your CPA! Plenty of our clients hire us to help with Social Security planning and I particularly enjoy doing it. Mike Sylvester, CPA
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