Tag Archives: 2013

Tax Breaks for School Expenses

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As summer begins to draw to a close, students of all ages are preparing to head back to school, and parents are shelling out money for everything from school supplies to tuition and fees.  This presents a great opportunity to summarize the various education-related tax benefits that are in place for these and other expenses.  Even though this benefit won’t be seen until tax time, it’s nice to know all this spending may result in some tax breaks.

Minnesota K-12 Expenses

Minnesota offers two different benefits for K-12 expenses; a subtraction (deduction) from income, and a credit against tax.

The subtraction allows for up to $1,625 of K-6 expenses and $2,500 of 7-12 expenses per child to be deducted from income before calculating Minnesota tax.  Some of the items allowed for the subtraction are listed below, though this is not a complete list.

  • Private school tuition
  • Fees for all-day Kindergarten
  • Music lessons
  • Tuition for summer camps which are primarily academic in focus, such as fine arts or language

For some, claiming a credit against tax would provide a greater benefit.  The credit is allowed for those with incomes between $37,500 and $43,500, depending on the number of children in the household.  In this case, the same expenses above that qualify for the subtraction qualify for the credit, with the exception of private school tuition.

As always, we’re here to help with areas like this, as we have been for nearly 40 years.

July 1st Update

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Starting today, a number of tax-related changes agreed to during the last legislative session go into effect, along with the effect of one key U.S. Supreme Court ruling.  Below is a summary of the key points.

  • The new, 9.85% top Minnesota tax rate went into effect, but is retroactive to January 1st, 2013. Those that are single with taxable income of more than $150,000, and married couples with more than $250,000 in taxable income will see the new 9.85% rate imposed on income over those amounts. This also points to a significant marriage penalty, since two single people can earn $50,000 more than a married couple before the new tax kicks in.
  • Starting with Minnesota tax refunds issued in 2014, those not choosing direct deposit will instead be issued a prepaid debit card; paper checks will no longer be issued.
  • The following items paid by an employer on behalf of an employee will now be subject to Minnesota income tax (these items are still exempt on the Federal level, but starting January 1, 2013 not for Minnesota). In these cases, Box 16 of the employee’s 2013 W2 will likely exceed Box 1.
    • Up to $5,250 of education expenses for education not directly related to the employees job. This includes many tuition reimbursement programs.
    • Up to $12,970 of adoption expenses paid on behalf of an employee or reimbursed to them.
    • Transit passes and vanpool expenses in excess of $125 per month.
  • The U.S. Supreme Court overturned the Defense of Marriage Act (DOMA), which clears the way for same-sex couples that are legally married in their state of residence to file joint tax returns. Beginning August 1st, 2013, same-sex couples will be allowed to marry in the State of Minnesota, allowing them to file jointly on both the Federal and State tax returns, which simplifies the process significantly. Those couples with income from states other than those that allow same-sex marriage will still face significant hurdles to correctly filing in multiple states.

We’re working hard to keep up on the changes as they come about, including the impending enactment of most of the Affordable Care Act.

Minnesota Tax Changes

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Late last night, the Minnesota Senate passed a comprehensive tax bill that makes significant changes to individual, corporate, and sales taxes in Minnesota.  The governor is expected to sign the bill into law.  Below are some of the key points that have been announced since the law’s passage a few hours ago.

  • Individuals with taxable income of more than $150,000, and married couples with taxable income of more than $250,000 will pay a new, 9.85% rate on the dollars over those limits.
    • This means Minnesota now has the 4th highest top individual income tax rate in the country.
    • This also imposes a significant “marriage penalty” on these earners, since the threshold for married couples isn’t twice that for single people.
  • The taxes on a pack of cigarettes will increase by $1.60 to a total of $2.83.
  • Businesses purchasing capital equipment will be allowed an up-front exemption from sales tax on those purchases, though the definition of “capital equipment” and the procedure for taking advantage of the exemption haven’t yet been announced.
  • Commercial warehousing and storage services, electronic repair services and the sale of telecommunications equipment will now be subject to sales tax. These items were previously exempt.
  • There is money in the law to help hold down property tax increases, and possibly increase the number and amount of property tax refunds available to homeowners and renters, but the details on this are also yet to be announced.

New Tax Rates and Other News

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After a rather quiet spring, there has been a flurry of tax-related activity and news from both the State Capitol in St. Paul, as well as Capitol Hill in Washington.  Here are a few things to keep your eye on.

  • At the State Capitol, lawmakers are debating a tax bill that will raise income taxes on the “top 2% of taxpayers” to a new top rate of 9.4%, giving Minnesota the 4th highest tax rates in the country. There is some confusion on what the “top 2%” actually is. Some reports place this new top tax rate on married taxpayers with taxable income of more than about $140,000, while other reports state the new top rate will kick in on married taxpayers with taxable income of more than $250,000. The House passed the bill late last night, and the Senate has yet to vote on the matter. No matter how it passes, the Governor is expected to sign it.
  • The same tax bill being debated in the Senate lowers the sales tax in Minnesota from 6.875% to 6.0%, but subjects a number of things to sales tax that were previously exempt, most notably all clothing, warehousing services, and attorney’s services. It also raises the per-pack cigarette tax significantly.
  • In the wake of the IRS appearing to inappropriately target conservative organizations seeking non-profit status, the acting commissioner of the IRS has stepped down, and will face a second day of questioning by the Senate today.
  • Also, due to the cuts imposed by the sequester, the IRS will be closed entirely this Friday, May 24th. No phone lines will be answered, no returns will be processed, and all enforcement activity will cease for that day. This is the first of a number of scheduled closures that will take place over the summer.

We will keep a close watch on the votes at the State Capitol and let you know the details once they pass the final tax bill.

Weekly Economic Update

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The Markets:

Markets turned out another solid performance last week as all three major indices reached new highs. With minimal economic data for investors to chew on, earnings drove most of the market action last week. On Tuesday, the S&P 500 set a new high while the Dow notched its first close above the 15,000 mark. Industrials, technology, and consumer discretionary stocks led the gains while utilities and consumer staples dropped. For the week, the S&P 500 added 1.19%, the Dow gained 0.97%, and the Nasdaq increased 1.72%.[1]


As we near the end of earnings season, 90% of S&P 500 companies have reported in, with 67% beating earnings expectations. If all remaining companies post numbers in line with estimates, earnings will be up 5.3% over the first quarter of 2012. However, most companies are still missing their revenue estimates, with only 46% beating their own revenue projections. Next week, a handful of major retailers are due to report, which, along with Monday’s retail sales report, will give sector analysts a lot to think about.[2]


After markets closed for the weekend, Federal Reserve officials announced their strategy for unwinding QE3, their unprecedented $85 billion per month bond-buying program. While they didn’t confirm the timing of intended moves, officials said they plan to reduce bond purchases in careful, measured steps as they monitor the job market and inflation. Because it doesn’t look like the Fed intended this announcement to mark the end of quantitative easing, it appears they meant to signal their flexibility in managing the programs in the months ahead.[3]


Looking ahead, the bulls could keep running next week as long as economic reports on labor, retail sales, industrial production, and manufacturing don’t disappoint. However, with equities reaching new highs, there are plenty of opportunities for weakness to end the run. If investors think that markets are overbought, some consolidation might occur. The market activity thus far suggests that investors are betting on increasing economic growth, and the Fed’s announcement seems to indicate that officials aren’t too worried about the U.S. economy at this time. As always, we’ll keep an eye on the action and will keep you informed.


ECONOMIC CALENDAR:
Monday: Retail Sales, Business Inventories
Tuesday: Import and Export Prices
Wednesday: Producer Price Index, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Housing Market Index, EIA Petroleum Status Report
Thursday: Consumer Price Index, Housing Starts, Jobless Claims, Philadelphia Fed Survey
Friday: Consumer Sentiment

Disclaimers and Sources

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[1]  http://briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-may-6-2013.htm

[2]  http://www.cnbc.com/id/100727118

[3]  http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html

[4]  http://www.usatoday.com/story/money/business/2013/05/08/late-payment-rate-mortgages-1q/2143699/

[5]  http://www.cnbc.com/id/100727407

[6]  http://www.reuters.com/article/2013/05/10/usa-economy-budget-idUSL2N0DR3LK20130510

[7]  http://thedailyrecord.com/2013/05/12/u-s-shows-budget-surplus-for-april/#ixzz2TAvsbAQI

[8]  http://www.latimes.com/business/autos/la-fi-hy-lower-summer-gasoline-prices-20130508,0,996849.story