The American Taxpayer Relief Act of 2012 permanently extended the expanded Coverdell education savings accounts (ESA). Coverdell accounts are tax-advantaged educational savings account that you can establish for any child under the age of 18. The Economic Growth and Tax Relief Reconciliation Act of 2001 increased the annual contribution limit for Coverdell ESAs to $2,000 per beneficiary. This increased limit was extended through 2012, and the recent tax law makes the expansion permanent.

While there are many different investment vehicles to save for education, one unique feature of Coverdell Accounts is that funds can be used for qualified expenses at elementary and secondary schools, including public, private, and religious schools.

As a parent, if you are committed to sending your children to private elementary or secondary school, you’re likely aware that financial aid is nearly nonexistent at this level of education. Most families pay out of pocket for private elementary or secondary schools. With a Coverdell education savings account, you can withdraw money tax free for these school expenses.

Contributions to Coverdell ESAs are made with after-tax dollars, and there is no tax deduction for contributions. However, distributions that are used to pay qualified education expenses are income tax free at the federal level. In Georgia distributions are also exempt from state income tax. Your modified adjusted gross income for the year must be less than $110,000 if filing a single return or $220,000 if married filing jointly to be eligible to open a Coverdell ESA. Contributions are then limited as your modified adjusted gross income increases between $95,000 and $110,000 if filing a single return or between $190,000 and $220,000 if married filing jointly.

Coverdell ESAs may not be the right savings vehicle for every family saving for education expenses. However, the permanent expansion for contributions and the ability to use funds for elementary and secondary schools may make them worth considering.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

The American Taxpayer Relief Act of 2012 permanently extended some tax relief credits for families and children. The Act permanently extended the expanded child and dependent care credit from The Economic Growth and Tax Relief Reconciliation Act of 2001. Generally, you are eligible for a tax credit if you pay someone to watch a qualifying dependent so that you can be gainfully employed. Qualifying dependents include a dependent child under the age of 13 or a disabled adult dependent who is unable to care for himself.

Taxpayers are eligible for a maximum credit of $1,050, or 35% of qualifying expenses of up to $3,000 per year for the care of one child. For the care of two or more eligible dependents, the maximum credit is $2,100, or 35% of up to $6,000 of qualifying expenses. It is important to note that you must reduce your qualifying expenses by any amounts provided by a dependent care benefits plan through your employer.

For taxpayers with incomes of $15,000 or less, the applicable percentage is 35%. The percentage is reduced by 1% for each $2,000 of income over $15,000, until the percentage reaches the 20% level for income of more than $43,000.



While this benefit was designed to help low-income working taxpayers with children, middle and upper-income families can benefit as well. Qualifying expenses can include the in-home related expenses of a housekeeper, babysitter or cook. If the daycare center cares for more than six children, services performed are allowed only if the center is certified and in compliance with all local laws. Day camps often qualify for the credit. A portion of boarding-school expenses may also qualify for the credit, but fees paid for sending your child to an overnight camp are specifically not allowed.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

2013 will be a big year for health care, with several provisions from the Patient Protection and Affordable Care Act becoming effective.

On the benefits side, Medicare Part D participants will see increased subsidies to reduce drug costs as they reach the gap in their drug coverage. Known as the “donut hole,” the coverage gap begins after you and your drug plan have spent $2,970. In 2013, participants will pay 47.5% of the cost for covered brand-name drugs and 79% of the cost for covered generic drugs. The entire price of your prescription will count as out-of-pocket costs, which will help you get out of the coverage gap.

With a Section 125 cafeteria plan flexible spending account, you chose an amount to be deducted from your paycheck before federal and state income taxes are deducted. The money is then used for reimbursement of medical expenses, not covered by insurance, such as, deductibles, co-pays, prescription drugs, dental services or eye care. The Patient Protection and Affordable Care Act reduced the annual contribution limit to $2,500, subject to annual increases for cost-of-living adjustments.

Medical expenses that meet certain qualifications may be tax-deductible, using an itemized deduction. In 2013, the threshold for itemized deductions increases to 10% of adjusted gross income. However, for taxpayers age 65 and older, the threshold remains at 7.5% of adjusted gross income.

Unfortunately, some tax increases outlined in the Patient Protection and Affordable Care Act take effect next year, including additional Medicare taxes on wages for high-income individuals. Currently, employees pay 1.45% of their wages into Medicare, with the other 1.45% paid by the employer. In 2013, individuals with wages exceeding $200,000 ($250,000 for married couples filing jointly, and $125,000 for individuals married filing separately) will pay an additional 0.9% on their earned income above that threshold. There is no employer match on the additional tax.

In addition, those same high-income individuals should see the new 3.8% Medicare contribution tax on unearned income. The tax is calculated by multiplying the 3.8% tax rate by the lower of either net investment income for the year, or modified adjusted gross income over a certain threshold amount. The 3.8% Medicare “surtax” is a complicated subject, which I’ll be covering in my column soon.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

The snickering because of your holiday sweater has ceased, the presents have been opened, and the decorations have been stored away for another year. It is now time to discuss New Year's resolutions that could help lower your stress and pad your wallet. Here are a variety of ways to get your financial situation in better shape.

Set a Plan.

Determine your risk tolerance—the degree of uncertainty that you can handle in regard to a negative change in the value of your portfolio. Keep your time horizon, spending needs, and other circumstances in mind when determining your risk tolerance to allocate your portfolio assets appropriately.

Pay Yourself First.

Consider investing in your 401(k) at least up to your company’s match. Even if your company is not matching your contributions, you should still be putting some money toward your retirement account. Consider setting your 401(k) contributions to the highest level you can handle (in 2013, $17,500 max for those under age 50; $23,000 max if 50 or older). If you are self-employed, consider talking to a professional about other special tax-saving opportunities, including Solo 401(k) plans, SEP-IRAs, and Keoghs.

Rebalance As Needed.

Depending on your risk tolerance factors, such as your age, income, etc, and portfolio's performance, it may be time to rebalance. When you rebalance, you trim assets that are overweight and use the proceeds to invest in underweighted assets, or you can use new investment dollars to buy underweighted securities. In doing this, you may be able to benefit by buying low and selling high, since often overweighted assets have performed better and underweighted assets should be relatively cheaper. However, tax consequences should be considered before making these decisions.

Review Your Losers.

In addition to reviewing the big picture and your overall asset allocation, you should compare the returns of your individual investments with their appropriate benchmarks. If a holding underperformed its benchmark by 3% to 5%, try to find out why. If that particular investment was out of fashion, it may be worthwhile to keep it in hopes for a turnaround. However, if your investment consistently underperformed its peers for multiple years, you may be better off dumping it for a better long-term performer.

Convert For Tax Free Growth.

While you will be hit with taxes up front, converting a traditional IRA to a Roth IRA will allow your money to grow tax free. As another bonus, there are no required minimum distributions after age 70. This may not be beneficial if you are going to pay too much in tax for converting. This decision should be carefully considered with the help of an investment professional or tax consultant.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

Charitable giving is more than answering a ringing bell with your spare change when you leave the shopping malls. It’s also more than looking for that last-minute tax deduction. While your year-end generosity might benefit you come tax time, it’s equally important to ensure that your donation is well spent.

For your charitable contributions to be tax deductible, the charity must meet IRS requirements to be classified as a tax-exempt organization. With more than 1.4 million nonprofit organizations registered with the IRS, you should find a charity that supports a cause you care about. Reputable nonprofit organizations should be more than happy to provide you with information on its tax status.

When you talk to a solicitor representing a charity, practice caution and never provide personal information, such as your Social Security number, or debit or credit account numbers, if you did not initiate the contact. Unfortunately, unsolicited requests for charitable donations—both by phone and email—could be a scam. It is wise to fully check out the charity before you donate.

You can usually obtain information about a charity’s mission and how your gift will be used on the charity’s website. You may wish to follow up by checking consumer websites like the Better Business Bureau's BBB Wise Giving Alliance at www.bbb.org/us/charity, or Charity Navigator at www.charitynavigator.org. These sites can provide information on the charity’s financial status and how much of the donations go to administrative costs versus their programs or services.

While you can provide a traditional cash donation, you may also be able to give stock, real estate or personal property. You may consider donating to a charity through your estate by way of a trust, charitable gift annuity, or designating a charity as a beneficiary of a life insurance policy. If you choose one of these methods, you should consult a C.P.A. or financial adviser to determine potential income and estate tax consequences based on your individual circumstances.

You should get a receipt from the charity showing their name and the date and amount of your donation. If you follow the IRS’ rules on tax deductions for donations, you should be able to deduct charitable donations as an itemized expense on Schedule A of your Form 1040. The amount of your deduction may be subject to certain limitations, depending on the type of gift, the charitable organization and your adjusted gross income.  For detailed information and a list of requirements, see IRS Publication 526, Charitable Contributions.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

Your debt-to-credit ratio weighs heavily on your credit rating at 30% of your FICO score. It is suggested that you keep the amount of open debt owed on each credit card or credit line relatively low, preferably no more than 25% to 50% of the credit limit. For example, it is better to owe $1,000 on three separate credit cards, with each card's limit being $4,000, versus owing $3,000 on one credit card, with a credit limit of $4,000. Spreading the debt over three cards results in a favorable debt-to-credit ratio of only 25%; whereas, owing $3,000 on one card with a $4,000 credit limit unfavorably uses up 75% of that particular credit line. In this case, debt consolidation may not be beneficial.

Perhaps you are considering that you should consolidate your debt by taking a loan at a lower interest rate to pay off several smaller loans at higher interest rates. Making one payment instead of many could make it easier for you to make timely payments, and thus, improve your credit rating over time.

If, for example, you have multiple accounts in default, generally, lenders will consider you a bad credit risk. If you pay the outstanding debts with a consolidation loan, a new credit report should show that you have resolved your debts. Now you have only one active line of credit, being your consolidation loan. Provided you stay current on the consolidation loan payments, your credit rating should be viewed more favorably than before. Payment history accounts for 35% of your credit score. Therefore, you need to pay your bills on time, every time.

Generally, there is no point in consolidating if you cannot lower your interest rate or increase the number of months you have to pay off the debt. The main goal of debt consolidation is to make your payments more affordable. The monthly payment on your consolidation loan should be less than the sum of the monthly payments on your individual debts. If this is not the case, consolidation may not be your best option. Carefully consider the interest rate you pay as well. One downside to debt consolidation is that by extending the time to pay off your debt, you could pay more in interest charges over the life of the loan.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

With increasing taxes just around the corner, most advisers are recommending deferring deductions to 2013. However, if you are a business owner and you think you'll need new business equipment or furniture next year, you may want to make that purchase in 2012.

There are two special provisions enacted several years ago that will expire at year-end:  a temporary increase in the Section 179 property-expensing deduction and special first-year bonus depreciation.

Over the years, various stimulus acts have aimed to spur business investment, by increasing the Section 179 property-expensing deduction. These laws allow a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction, rather than utilize the standard depreciation schedule.

For 2012, businesses can deduct up to $139,000 of the cost of qualified property, with the total amount of equipment purchased not exceeding $560,000. This amount phases out when more than $560,000 worth of assets are put into service.

In addition, there is a special 50% depreciation deduction for property acquired and placed in service in 2012. The bonus deduction can be taken on the adjusted cost basis of the property after any Section 179 expensing.  To qualify for bonus depreciation, the property must be new, acquired during 2012 and must be placed in service during 2012.

You have a very narrow window to make purchases, because as of January 1, 2013, the Section 179 property-expensing limit is scheduled to drop to $25,000, phasing out after $200,000 of total purchased equipment, and the 50% bonus depreciation allowance will likely be eliminated.

Since the deduction and the bonus depreciation can work in conjunction, it is certainly worth talking to your C.P.A. or tax adviser to plan some tax-advantaged purchases for your business before year end.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

The holiday season is upon us, and the overachievers are already shopping for gifts. A holiday tradition for many businesses is to send gifts to valued clients or customers.

 Now, if you’re a taxpayer, you’re probably thinking that client gifts make a great tax-deductible business expense. However, before you buy that expensive bottle of Dom Perignon, you should understand what amount is deductible per the tax code.

The deductible limit on business gifts is $25 a year to any one individual. Gifts made to family members of the client are also considered gifts to the client. In addition, you cannot exceed the limit by having your spouse make a gift to the same client—even if your spouse has a separate business relationship with the client.

A few incidental expenses that you can deduct beyond the $25 include the costs of engraving, wrapping, insuring and mailing the gifts. You are allowed to deduct the cost of promotional gift items, such as, pens, desk sets or calendars, on which your name is imprinted. However, that cost can be no more than $4 each.

So, if you buy a client a gift that costs $25, spend $10 to wrap and mail it, and then give the same client a $4 calendar with your company's name on it, you are eligible to deduct a total of $39, as a business expense on your tax return.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

Generally, taxpayers aim to minimize their taxes, and likewise, financial advisers and C.P.A.s provide guidance to help you avoid triggering a taxable event. However, you may find more than a few recommending you consider a Roth conversion, before year-end.

If you convert pre-tax money in an IRA to a Roth IRA, you will have to pay taxes at your current marginal rate on the amount converted. Yes, that could mean a higher federal and state bill for 2012. However, with the increasing likelihood of rising tax rates next year, accelerating income into this year may be a beneficial move for certain investors.

Currently, there is no income limit for a Roth conversion. Therefore, it may be beneficial to convert funds in a pre-tax IRA to a Roth, to potentially avoid higher future tax rates on your eventual withdrawals. Qualified withdrawals from a Roth IRA are free from federal income tax. Additionally, withdrawals are not required, so a Roth may result in additional money being transferred to your heirs.

Furthermore, in 2013, investors are scheduled to see a 3.8% Medicare surtax on investment income for those with modified adjusted gross incomes (MAGI) above $200,000 for individuals and $250,000 for married filing jointly. While a Roth conversion in 2013 would not be considered investment income, it could increase your MAGI above the threshold, subjecting other investment income to the Medicare surtax. This surtax, combined with potentially higher marginal rates, makes 2012 attractive for conversions.

If this is something you’d like to consider, talk to your financial adviser or C.P.A. sooner than later as your window for a conversion is narrow. An expert can help you estimate how a conversion will affect your taxes and your investments.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks," airing Sundays at 10 a.m. on Talk 920 AM, WGKA.

You can’t help who you fall in love with. Sometimes the love of your life comes with less than stellar credit. Thankfully, you are not responsible for your future spouse's bad credit or debt. However, their credit problems could result in denied loans or lines of credit you apply for together after you are married.

It’s a wise financial move to discuss credit issues before you are married, because debt problems and spending habits can result in stress in a marriage. You should start by ordering both your credit reports from www.annualcreditreport.com. With your history in front of you, you should be able to have an open discussion on past finances, and learn why or how your future spouse got in trouble with their credit.

If the outstanding debt is significant and will affect your financial future as a couple, you may consider going through credit counseling together. CredAbility, formerly Consumer Credit Counseling Service of Greater Atlanta, offers a free counseling session. Attending the counseling session does not affect your credit score or credit report. Their website at www.credability.org also has an online course designed to show you how to identify areas of concern and reduce financial stress before you walk down the aisle. CredAbility’s other services include debt management plans that can provide you a way to pay down outstanding debt. However, note that CredAbility cannot repair your credit or settle debt for pennies on the dollar.

Another consideration is to keep you and your spouse’s credit separate until your spouse's credit record improves. Once you get married, it may be wise for each of you to use separate checking accounts and credit cards to maintain your own active credit record. Perhaps this could allow your spouse the necessary time to repair his or her credit with continuous, on-time payments.



You can apply for credit by yourself rather than applying for joint credit after you're married. However, this solution is not without drawbacks. For example, you may have to postpone applying for a mortgage loan, as you may need your spouse’s income to qualify for a large loan amount.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks," airing Sundays at 10 a.m. on Talk 920 AM, WGKA.