Give Yourself a Little Credit

tax_3The season is upon us again and the familiar shakes, fever and sweaty palms are back. Yes. It’s tax time. But this year doesn’t need to seem so bleak. While many companies are still sitting in the red, you can go for the black by going green. But you’ve a short time to get it done.

The Personal Energy Tax Credit ends December 31 and though energy efficiency is rarely cheap in the beginning, if you could save $1,500 in owed taxes now and save a lot on utilities in the long run, it is worth considering. And who doesn’t want a reason to replace those drafty old windows?

The first step in the process is to assess your home. Call your local utility company to see if they provide free assessments, or hire a professional consultant. Your builder is a great resource for a walkthrough. You can also visit energystar.gov and click on the home advisor for customized recommendations and find a link for Energy Star contractors in your area.

Having decided that a few things could be upgraded, the next question is, what can be purchased, installed and written off by the end of the year?

Get the most bang for your dollar in the shortest amount of time. Credits exist for 30% of improvement cost. This includes labor in some cases but excludes material (nuts and bolts or tools). With no cap on the household income, a maximum of $1,500 for the following home improvements can start to add up: Biomass stoves, heating and AC, insulation, roofs (metal and asphalt), water heaters (non-solar), windows, doors and skylights all of which could be installed before you ring in the New Year.

While most of the list seems familiar, you may be wondering what a biomass stove is and how it can help you save money. One phrase sums it up: a renewable energy source that burns with little impact on the environment. Biomass stoves provide an alternative to traditional wood stove heating. Burning compacted wood pellets, corn and even dried cherry pits, these stoves increase fuel-to-heat conversion by as much as 75% and burn much cleaner than traditional wood stoves.

Everything looks good so far and you had wanted to make improvements for some time, but as always, there may be a catch. Peter Doyle, CPA of Davidson, Doyle & Hilton, warns, “The credit may turn out to be only 10% of the total cost with a limit of $300 and the products must have the seal of the Energy Star label to be approved.” The discrepancy is due in large part to the selection of the devices themselves. Make sure you know all the requirements for the items before you buy.

tax_1The intent of an Energy Star product is to use less energy, which in turn saves you money when the electricity bill comes. Some examples for Energy Star compliance include refrigerators that are at least 15% more efficient, light bulbs that use two thirds less energy and TVs that consume half the energy when switched off. Because of the fluidity of tax rules, Energy Star states that the listed benefits and credits are only approximations. The site advises to check with your accountant before investing.

Scott Werthman, accountant with Shackleford & Werthman, agrees. Since tax codes change like the seasons, you may want a CPA in your corner when considering energy-efficient upgrades. In the meantime, you can visit energystar.gov for a complete list of requirements and eligible products to get you started.

As a wise man once stated, count the cost before you build. It seems worth it to finance an upgrade if you can save $1,500 but what about a mere $300? Is there another way to add to that bottom line and remain in the green? Always.

You could deduct $1,400 or more if you have a home office. The trick is qualifying. There are some substantial rules that apply that may be found at irs.gov. Look for form 587. This form states, “To find the business percentage, compare the size of the part of your home you use for business to your whole house.” Some questions to be answered include: Is the space used in conjunction with a trade or business? Do you meet with patients or clients exclusively in the space? If it all adds up, it’s a deduction. But what is deducted and how?

tax_2Chris Wingfield of Brown, Edwards & Company, LLP explains how it works. “ Let’s say the space used for the home office is 14% of the total footage. The 14% would be deducted from the expenses of the home used for business needs—utilities, supplies, depreciation of equipment, etc.” There are even guidelines for separate structures and if you manufacture or store an inventory out of personal or residential space, which can be included in the business expense.

Now the initial $1,500 could be more like $1,700–$2,900 when adding it all up. Utilities have been reduced through energy-efficient devices projected to increase savings spanning the life of the product and the builder has mapped out a game plan that can be implemented before December 31.

Six weeks later the house is green and the dust has settled. Now how do we claim this credit? What do we need for the IRS?

Doyle says that the rules for claiming the credit are fairly simple—you will need an IRS form 5695 and the standard 1040 form, receipts and the Manufacturer’s Certification Statement. Werthman mentions that for the home office deduction, not much more than form 587 is needed to calculate the percentage, though receipts need to be kept against future audit.

Going green to get a little green; in the middle of a cold white winter, that is certainly an energizing thought!



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