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Taxes

Moving to escape taxes? Make it a clean break

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Breaking up can be hard to do if the other party doesn’t want to let you go. People who move out of high-tax states may learn this the hard way — through a residency audit.

States such as New York, California and Illinois use the audits to claim that your recent interstate move was just a tax dodge and that you still owe their state income taxes. Proving you’ve actually moved and plan to make the new place your permanent home — yes, the burden of proof is on you in a residency audit — often requires far more than flashing your new driver’s license or spending a certain number of days outside the old state. In my latest for the Associated Press, how to prepare for a residency audit.

Q&A: Unloading a timeshare

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Dear Liz: How can a timeshare owner get rid of the timeshare and claim the loss on taxes?

Answer: Timeshares typically are considered a personal asset, like a boat or a car, so the losses aren’t deductible. The best way out of a timeshare is often to give it back to the developer, if the developer will take it. You also could try to sell it on sites such as RedWeek and Timeshare Users Group. Unless your timeshare is at a high-end property, you are unlikely to recoup much and may have to pay the buyer’s maintenance fees for a year or two as an incentive.

Monday’s need-to-know money news

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Today’s top story: Your guide to earning bonus miles with airline promotions. Also in the news: 4 important features to finding the perfect home, why some people don’t mind overpaying the IRS, and this cash-envelope budgeting system turns back-to-school shopping into a money lesson.

Your Guide to Earning Bonus Miles With Airline Promotions
Check out these limited-time offers.

Look for these 4 important features to find the perfect home
Sometimes good enough is perfect.

Here’s why these people don’t mind overpaying the IRS
They’d rather get a refund.

This cash-envelope budgeting system turns back-to-school shopping into a money lesson
Letting your kids make the decisions.

Tuesday’s need-to-know money news

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Today’s top story: Apps that encourage you to spend. Also in the news: Advice for weaning your grown kids off your credit cards, why some people don’t mind overpaying the IRS, and how to protect yourself from falling interest rates.

These Types of Apps Could Prompt Impromptu Spending
You don’t need extra help spending money.

Advice for weaning your grown kids off your credit cards
Time to cut them loose.

Here’s why these people don’t mind overpaying the IRS
Yes, you read that correctly.

How to Protect Your Savings From Falling Interest Rates
A few options.

Tuesday’s need-to-know money news

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Today’s top story: 5 simple ways to get out of credit card debt faster. Also in the news: Why you should take a first-time homebuyer class, taxes on micro-investing earnings, and 10 frugal back-to-school shopping tips.

5 Simple Ways to Get Out of Credit Card Debt Faster
Becoming debt-free faster.

First-Time Home Buyer Class: Why Take It?
You could have a lower monthly payment.

Don’t Forget About Taxes on Microinvesting Earnings
Those apps come with 1099s.

10 Frugal Back-to-School Shopping Tips
Back-to-school doesn’t have to break your budget.

Q&A: This 529 college savings plan has a problem: no kids

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Dear Liz: When I found out I could save for my future children by enrolling in a 529 college savings plan and not pay taxes on the growth, I started doing that three years ago. Since then I got married, and my wife decided to get an MBA. I have $41,000 saved away for my currently nonexistent children. Am I able to transfer that money to my wife and use it to pay for her MBA without getting penalties?

Answer: Yes.

The beneficiary of your 529 plan is not actually your unborn children, since you can’t open these plans for nonexistent kids. When you started the account and were asked for the beneficiary’s Social Security number, you probably provided your own.

That could have created a small problem down the road when you did have kids because changing the beneficiary to someone one generation removed — from parent to child, for example — is technically making a gift, and gifts in excess of $15,000 per recipient per year are supposed to be reported to the IRS using a gift tax return. Fortunately, you wouldn’t actually owe any gift tax until you’d given away several million dollars above that annual limit.

By contrast, changing the beneficiary to a family member in the same generation — from yourself to a spouse, for example — is not considered a gift and wouldn’t trigger the need to file a gift tax return.