Tax Credits

Improving your home can be rewarding both emotionally and in terms of increasing your living comfort and boosting your property value. However, many home improvements can also be quite expensive. Fortunately, there are ways to ease the financial burden, one of which is leveraging tax credits. 

Understanding Tax Credits

A tax credit is a dollar-for-dollar reduction in the amount of tax you owe. Unlike deductions, which lower your taxable income, tax credits directly reduce your tax liability, making them particularly valuable when used correctly. Consult with your CPA to learn more.

The Power of Tax Credits

Tax credits can greatly lower the cost of your home improvement projects. By reducing your tax bill, you could free up more money to invest back into your home. Various tax credits are available, often focusing on energy efficiency and renewable energy improvements, which not only save you money but also benefit the environment. 

Energy Efficiency Upgrades

One of the most popular areas where tax credits are applicable is energy efficiency. Governments often incentivize homeowners to make their homes more energy-efficient to reduce overall energy consumption and carbon footprints.

Windows and Doors

Upgrading your windows and doors can make a significant difference in your home’s energy efficiency. Energy-efficient windows and doors help to keep your home warm in the winter and cool in the summer, reducing the need for heating and cooling. These upgrades can qualify for tax credits, making them a smart investment for both comfort and cost savings.

Insulation and Roofing

Proper insulation is crucial for maintaining an energy-efficient home. Adding insulation to your attic, walls, or floors can prevent heat loss during the winter and keep your home cooler in the summer. Similarly, installing energy-efficient roofing materials can help regulate your home’s temperature, reducing the load on your HVAC system. Both insulation and roofing improvements can be eligible for tax credits.

Heating and Cooling Systems

Replacing old, inefficient heating and cooling systems with modern, energy-efficient models can lead to substantial energy savings. High-efficiency furnaces, heat pumps, and air conditioning units not only reduce your utility bills but can also qualify for tax credits. These upgrades improve your home’s comfort and contribute to a greener environment.

Renewable Energy Improvements

Renewable energy sources are another area where tax credits can be incredibly beneficial. Investing in renewable energy for your home can significantly reduce your reliance on traditional energy sources and lower your long-term energy costs.

Solar Panels

Installing solar panels is one of the most effective ways to harness renewable energy. Solar panels convert sunlight into electricity, providing a sustainable and cost-effective energy source for your home. Many governments offer tax credits for solar panel installations, making this green upgrade more accessible and affordable.

Solar Water Heaters

In addition to solar panels, solar water heaters can be a great investment. These systems use solar energy to heat water for your home, reducing the need for conventional water heating methods. By installing a solar water heater, you can lower your energy bills and take advantage of tax credits designed to promote renewable energy use.

Wind Turbines and Geothermal Systems

For homeowners with sufficient space and the right conditions, small wind turbines and geothermal systems offer additional renewable energy options. Wind turbines can generate electricity from wind energy, while geothermal systems use the earth’s natural heat to provide efficient heating and cooling. Both of these systems can be eligible for tax credits, further reducing the financial burden of installation.

Water Conservation Measures

Water conservation is another critical area where tax credits can support home improvements. By implementing water-saving technologies, you can reduce your water usage and utility bills while contributing to environmental conservation.

Low-Flow Fixtures

Upgrading to low-flow toilets, faucets, and showerheads can significantly reduce your home’s water consumption. These fixtures maintain performance while using less water, making them a cost-effective way to conserve resources. Some tax credits may apply to the installation of these water-saving devices, encouraging homeowners to make environmentally friendly choices.

Rainwater Harvesting Systems

Installing a rainwater harvesting system allows you to collect and store rainwater for various uses, such as irrigation and non-potable household needs. These systems help reduce your dependence on municipal water supplies and can be eligible for tax credits in some areas. By investing in a rainwater harvesting system, you can lower your water bills and contribute to sustainable water management practices. Be sure to check with your city or town government first, since some forbid residents to harvest rainwater.

Accessibility and Safety Improvements

While energy efficiency and renewable energy upgrades are common areas for tax credits, there are also incentives for making your home safer and more accessible.

Home Accessibility Modifications

For homeowners with disabilities or aging in place, making accessibility modifications can be essential. These improvements might include installing ramps, widening doorways, or adding grab bars and handrails. Some tax credits are available to help offset the cost of these modifications, making it easier to create a safe and accessible living environment.

Home Security Systems

Investing in a home security system can provide peace of mind and protect your property. In some cases, tax credits may be available for installing security systems, helping you enhance your home’s safety without breaking the bank.

Planning Your Home Improvement Projects

Successfully leveraging tax credits for home improvements requires careful planning and research. Here are some steps to help you maximize the benefits of available tax credits:

Research Eligibility

Before starting any home improvement project, research the tax credits available in your area. Eligibility requirements can vary, so it’s crucial to understand what improvements qualify and what documentation you’ll need to claim the credits.

Consult Professionals

Working with professionals can ensure that your home improvements meet the necessary standards for tax credits. Contractors experienced in energy-efficient and renewable energy projects can help you navigate the requirements and maximize your savings.

Keep Detailed Records

Maintaining detailed records of your home improvement expenses is essential for claiming tax credits. Keep receipts, contracts, and any other relevant documentation to support your claims when filing your taxes.

Plan Ahead

Consider incorporating tax credit-eligible improvements into your long-term home maintenance and renovation plans. By strategically planning your projects, you can spread out the costs and take advantage of tax credits over multiple years.

Using tax credits toward home improvements is a smart way to enhance your living space while easing the financial burden. Whether you’re upgrading for energy efficiency, harnessing renewable energy, conserving water, or improving accessibility and safety, tax credits can make these projects more affordable. By understanding the available incentives and carefully planning your improvements, you can enjoy a more comfortable, efficient, and sustainable home.

by Kate Supino

Electric vehicles appear to be here to stay as they continue to grow in popularity with more and more drivers on the road today. And, as more auto manufacturers commit to producing electric vehicles, buyers are still looking for ways to offset the cost of their purchase. Thanks to Congress, one of the best ways to do so is by taking advantage of the Plug-In Electric Drive Motor Vehicle Credit, more simply known as the electric vehicle tax credit. If you're wondering what's the deal with this credit and if it’s something you should check into, here's all you need to know.

Electric Vehicle Credit Details

A short-term incentive, the electric vehicle credit is designed to offset the high price of purchasing an electric vehicle. The credit ranges from a low of $2,500 to a maximum of $7,500 for electric vehicles, so long as they are considered to be qualifying vehicles. However, the credit is non-refundable, and you'll need to have a federal tax liability during the year you purchase your EV to claim the tax credit. If claiming the credit, IRS Form 8936 will be needed.

Which Electric Vehicles Qualify for the Credit?

To be a qualifying vehicle, the EV you want to purchase must be an all-electric or hybrid car, it must have been purchased no earlier than 2010, you must be the person who is the primary driver, and the vehicle must be used in the United States. Since the IRS does provide a list of approved electric vehicles that meet the criteria for the tax credit, you should have few questions about whether your vehicle does in fact qualify. But should questions arise, never hesitate to speak to your CPA.

Does the Electric Vehicle Tax Credit Expire?

Unfortunately, the electric vehicle tax credit does expire. However, in doing so, it is a multi-tiered process. To begin with, no matter the model of electric vehicle, the credit will phase out once that vehicle's manufacturer sells at least 200,000 qualifying vehicles.

Once an EV automaker hits the 200,000 mark in vehicles sold, the credit is cut from $7,500 to $3,750 in the second calendar quarter until the end of the third calendar quarter following the 200,000 threshold. For the next two quarters, the credit is again cut in half, this time to $1,875. Finally, it stays there until the credit drops to $0 after one full year or four calendar quarters after the phase out originally started.

Do All Auto Manufacturers Still Qualify for the Credit?

Though most auto manufacturers have yet to reach the 200,000 mark on selling electric vehicles and thus still have vehicles that qualify for the tax credit, some do not. As of now, General Motors and Tesla are the only auto manufacturers that do not have vehicles qualifying for the tax credit, since each has sold in excess of 200,000 electric vehicles.

Who is Eligible for the Electric Vehicle Tax Credit?

To be eligible for the electric vehicle tax credit, you will of course need to confirm through the IRS list that your electric vehicle is considered to be a qualifying vehicle. Once this is done, you may want to consult with your CPA to ensure you will indeed have a federal tax liability in the year your vehicle was purchased.

Should your tax liability be lower than the available credit, the credit is capped at your tax liability. Thus, even if you have a $7,500 credit but only have a $3,000 federal tax liability, the most your credit can be is $3,000, since there is no carryover credit allowed.

What About State and Local Tax Credits and Rebates?

While the federal government has taken the lead in initiating tax credits and rebates to encourage consumers to purchase electric vehicles, state and local governments have also done their part to encourage the transition from gas-powered vehicles to electric vehicles.

But to find out if your locality and state offer any tax credits and rebates, you'll likely have to do quite a bit of research, since most of these offers are not greatly publicized. To find out what may be available to you, you can often visit your local town hall or look at your locality's website. Also, you can contact your electric company to find out if they are offering any credits or rebates.

One state that does offer an EV rebate is Pennsylvania, which has the Alternative Fuel Vehicle Rebate. But to take advantage of this rebate, you will need to submit an application within six months of purchasing your vehicle, meaning a vehicle you purchased several years ago may not qualify. Since rules will vary from state to state and one locality to another, it is best to talk to your CPA to discover if there is a tax credit or rebate out there with your name on it.

If you are considering purchasing an electric vehicle, combining local, state, and federal tax credits and rebates can have you potentially saving thousands of dollars on your purchase. Along with helping to protect the environment, you will likely also be viewed as a trendsetter in your town or city. With dozens of automakers still qualifying for the tax credit, the time is right for you to finally purchase an electric vehicle. But before you head to the dealership, stop by the office of your CPA to learn all you can about the electric vehicle credit.

The pandemic has wreaked havoc with many family’s finances. To help with this, the federal government has made it much easier for many parents to take advantage of the child tax credit and advance child tax credit. But, as with anything concerning your taxes and the IRS, there are various guidelines you must follow to ensure your information is correct, and so that you get the tax credit you expect. To help guide you through this process, we have compiled some of the most common questions and answers pertaining to this important topic.

What are Advance Child Tax Credit Payments?

These payments, which will actually be early payments from the IRS, are for 50 percent of the estimated amount of the child tax credit you are allowed to claim on your 2021 tax return, which of course would be filed during the 2022 tax season. If your 2019 or 2020 tax returns have already been processed by the IRS, these advance payments would be made on a monthly basis through December 2021.

Do I Need to do Anything Special to Receive this Credit?

In most cases, you will not need to do anything special to receive the advance child tax credit, as long as the IRS considers you to be eligible for these payments based on your 2019 or 2020 tax returns.

Do I Need to be Earning Income to Receive this Credit?

To be eligible to receive the advance child tax credit payments, you will not be required to have an income. Thus, even if your income is zero, you should be eligible to take advantage of this tax credit.

Who is a "Qualifying Child" for this Tax Credit?

Under IRS guidelines for the 2021 tax year, a qualifying child will be any person who does not turn 18 years old prior to January 1, 2022. In addition, they must satisfy other conditions. The most common include not providing more than 50% of their financial support during 2021, living in the same household as the taxpayer for at least 50% of tax year 2021, and being legally recognized as being the taxpayer's biological son or daughter, stepchild, brother or sister, eligible foster child, or various other relations.

Are Social Security Numbers Required to Receive this Credit?

To receive the advance child tax credit, you and your spouse must have either a Social Security Number or an Individual Taxpayer Identification Number from the IRS. Also, remember that these tax credit payments will be made for each qualifying child who has a Social Security Number considered to be valid for U.S. employment.

How Do I Know if a SSN is Valid for Employment?

For a qualifying child to have a SSN that is considered to be valid for U.S. employment, it must have been issued to them by the Social Security Administration prior to the due date of your 2021 tax return, which does include any extensions. In situations where a person may have a Social Security card that contains the phrase "Not Valid for Employment" but has an immigration status that has changed so that they are now either a U.S. citizen or permanent resident, it is imperative you contact the SSA and request an updated Social Security card. Otherwise, the person's eligibility status may be questioned by the IRS.

What is the 2021 Child Tax Credit Amount?

In the 2021 tax year, the Child Tax Credit has increased substantially. While previously it was $2,000 for each qualifying child, it has not increased to $3,000 for each child who is ages 6-17 at the end of 2021. Also, for children who are less than six years of age at the end of 2021, the amount is $3,600 per child.

Can the Amount I Receive Decrease Based on My 2021 Income?

Unfortunately, the answer to this question is yes. In fact, there are two different phaseouts, both of which are based on your modified adjusted gross income for 2021. The first phaseout will decrease the amount of the Child Tax Credit to only $2,000 per child, while the second phaseout may reduce the remaining Child Tax Credit to less than $2,000 per child. Since these phaseouts can be confusing, it is best to discuss your situation with an experienced CPA to learn how or if these phaseouts will apply to you and your family.

Will I Receive Lower Payments if I Owe Taxes from Previous Years?

While you may assume you are destined to receive lower payments from this tax credit if you owe taxes from previous years, the good news is that any taxes you still owe will not keep you from receiving what you are entitled to from the Child Tax Credit. However, should you receive a regular tax refund from your 2021 taxes, any Child Tax Credit amounts that still remain may be subject to being used to pay off state or federal tax debts, so keep this in mind.

What About Past-Due Child Support?

Should you or your spouse owe past-due child support, this will not offset any advance Child Tax Credit payments to which you are entitled.

Can My Payments be Subject to Garnishment?

Yes. Under federal law, these payments are not exempt from being garnished by non-federal creditors. Thus, private creditors as well as your local or state governments may take action to garnish the payments you receive.

What if I Have Not Filed Taxes in Previous Years?

Finally, if you have not filed taxes in the last few years but did enter information into the Non-Filer tool to be eligible for stimulus payments, the IRS will use this information to determine your eligibility. Should you qualify, you will be automatically enrolled for these tax credits.

Due to the many complexities associated with these tax credits, don't leave anything to chance. Instead, consult with your CPA as soon as possible.

Parents and guardians who care for one or more children should know how valuable the child tax credit is. This tax credit is available for qualified filers who have a child under the age of 17. Since it was enacted in 1997 and since then has helped millions of people with the costs of rearing a child. Up to $2,000 is now available per child. The new administration is hoping to expand the child tax credit, on a temporary basis as part of a COVID-19 relief plan. While the measures still need to pass on the Congressional floor, there are some exciting aspects of the proposal that are worth knowing.

A Higher Limit 

The proposal includes a limit increase that would mean a maximum of $3,000 instead of $2,000 per child under the age of 17. Filers with children aged under six years old could get a child tax credit of up to $3,600. Further, the credit would be 100% refundable instead of partially refundable, as it is now. Note that these higher limits would only be temporary. It’s likely that they would not continue into 2022.

What is the Child Tax Credit? 

The child tax credit is intended to help lower income families with the costs associated with child rearing. It is a tax credit, which reduces the amount of tax you owe. If you file your taxes and don’t owe anything, or the amount of the child tax credit is more than the amount you owe, you can get a tax refund. As mentioned above, as of 2021, 100% of the child tax credit is refundable. Also, if you are getting a tax refund, the child tax credit can even increase the amount of your tax refund. This is why it’s such a valuable tax credit, yet many tax payers don’t avail of it. Your CPA can assist with ensuring you get the appropriate amount of child tax credit.

Who Qualifies For a Child Tax Credit?

The first qualification in order to get the child tax credit is that the filer must provide the child’s social security number. Note that prior to 2021, you were able to simply use an ATIN (adoption taxpayer identification number) or an ITIN (individual taxpayer identification number). It’s easy to get a social security number for a child, but it does take a few weeks to process, so it’s best to start that process as early as possible after a child is born. 

The second qualification to be aware of is that the child cannot have turned 17 before the end of the tax filing year. If the child’s birthday is December 31 and they turned 17, they don’t qualify.

The third qualification is that the child is a U.S. citizen, U.S. national or a permanent resident alien. If you have questions about this qualification, speak to your CPA.

The next qualification is that the child must be at least 50% financially dependent upon the tax filer. They can’t have provided more than half of their own support, such as shelter, food, clothing, etc.

The child must have resided with the tax filer for at least six months of the tax year. You may need to provide proof through documents such as school records, employment records, etc. Exceptions to this requirement include:

•   A child away for a holiday, medical reasons or a business-related trip.

•   A child away in a juvenile detention center

•   A child away due to divorced or separated parents

•   A child away for boarding school or military reasons

There must be an official relationship between the tax filer and the child, such as:

•   Foster child

•   Natural child

•   Descendant

•   Adopted child

•   Sibling/step-sibling/half-sibling

•   And more

The child can’t have filed a married filing jointly return.

There may be other ways to get tax credit help for rearing children if your child doesn’t qualify under the criteria mentioned above. Talk to your CPA about the possibility of qualifying for the Other Dependent Child (ODC) credit, which is available for certain children over the age of 17.

Income Requirements For the Child Tax Credit 

Because the child tax credit is intended to help lower income families, there are income limitations in order to qualify:

•   If you earned less than $2,500 in the tax year, you are ineligible to claim the child tax credit.

•   For a full tax credit, single tax payers can’t have a modified adjusted gross income of over $200,000.

•   For a full tax credit, married filing jointly tax payers can’t have a modified adjusted gross income of over $400,000.

•   The child tax credit amount is reduced by 5% for every $1,000 over the thresholds of $200,000 and $400,000.

Claiming the Child Tax Credit on Your Tax Returns 

Your CPA is available to assist you with claiming the child tax credit on your tax returns. The credit is available on forms 1040, 1040-SR, and 1040-NR. You’ll need to provide your CPA with your child’s social security number, name and address. Note that if you tried to claim the child tax credit any time after 2015 and it was denied, you or your CPA will need to file Form 8862.

Don’t miss out on the child tax credit if you and your child qualify. If you’re unsure whether or not you meet the criteria, it’s worth giving your CPA a call to find out for certain. The temporary expansion of the child tax credit for 2021 makes this credit even more valuable to families who are struggling due to COVID-19. Talk to your CPA today.

The COVID-19 pandemic has negatively affected businesses around the nation. Due to this, some impacted businesses can take advantage of a reimbursable tax credit known as the Employee Retention Credit (ERC). The ERC is an incentive meant for employers to encourage employee retention during the pandemic. Read on to find out more about the Employee Retention Credit and its impact to your business during and after the epidemic.

What is Employee Retention Credit? 

The ERC is a reprieve measure meant to cushion businesses against the adverse effects of COVID-19. It is available to all employers who retain employees on the payroll and is equivalent to half of the qualified salaries up to a maximum of $10,000 per employee. The credit is available from March 13, 2020, to December 31, 2020.

How is Credit Retention For Employees Calculated? 

The credit amount is 50 percent of all qualifying wages paid to a maximum total of $10,000. Wages included in the calculation include the cash payments and a percentage of the health care cost provided by the employer. Eligible health care expenses include both the employer and employee percentage of the expenses, with salary reduction contributions before tax. Amounts that employees pay with after-tax contributions are not factored in the calculation.

What are Qualifying Wages? 

Qualifying salaries are determined by the number of average employees that a business had in 2019. There are two qualifying salaries measures depending on the size of a business.

Businesses with Fewer than 100 Workers

If the business had 100 or less workers in 2019, the credit amount is calculated based on the salaries paid to the employees, irrespective of whether or not the employees worked. If the workers were available on a full-time basis and got full-time salaries, the employer will still receive the credit. 

Businesses with More than 100 Workers 

If the business had 100 or more employees in 2019, the credit is only allowable for salaries paid to workers that did not work during the period.

Which Businesses Qualify for the Credit? 

All eligible employers can access the credit regardless of the size of their businesses. The following are the two categories of eligible employers:

• Employers who have partially or fully suspended operations during any calendar quarter because of the effects of coronavirus.
• Employers who experience a major decrease in gross receipts resulting from coronavirus in any calendar quarter in 2020. For example, a decline below 50 percent compared to the quarter amount in 2019.

However, the credit is not available to the earnings or services of self-employed persons.

How Does the Employee Retention Credit Work? 

The credit allows employers to get a 50 percent credit up to a maximum of $10,000 of their member of staff’s qualifying wage. Employers can get a maximum reimbursement of $5,000 for every employee for all quarters.

The credit will reduce the employer’s Social Security (SS) tax liability. If the credit is more than your SS tax liability, then the IRS will issue a refund.

How do I Claim the Credit? 

The process of claiming the employee retention credit is different from the other tax credits. There is no application for the credit; businesses can receive reimbursement straightaway by reducing their payroll tax payments. An employer can file the payroll tax deposits quarterly using Form 941 that captures their quarterly tax returns.

When to Report the Qualified Wages 

Employers can claim the credit on eligible wages paid from March 13, 2020, up to December 31, 2020. Any salaries paid earlier than March 13, 2020, or when the December 31, 2020, deadline lapses do not qualify.

What Happens If the Employee Retention Credit Is More Than the Payroll Tax Deposits?

If an employer’s tax deposits are less than the Employee Retention Credit, the employer can use Form 7200, which details the advance payment of the credits to employers because of COVID-19, and request for early payment from IRS. If you receive the advance amount and usually file Form 941 quarterly, remember to include the amounts advanced when filing. 

Claiming the ERC if You Have Another Loan or Credit 

You cannot claim the Employment Retention Credit if you have the Paycheck Protection Program (PPP) loan. Employers can only receive the Employment Retention Credit if they do not get and use the PPP loan. Employers are not eligible for the ERC after receiving the PPP loan and if the loan is forgiven.

However, employers who received and repaid the PPP loan before May 14, 2020, can get the ERC if they qualify for it.

Employers have a right to claim the FFCRA paid leave credits and the Employment Retention Credit. However, they cannot claim the two credits using the same salaries.

Examples of How You Can Calculate Employee Retention Credit 

If you are an employer with a single employee who you pay $5,000 in qualified salaries, you may receive a credit of $2,500. That is 50 percent of the $5,000.

If you provide the same employee with qualified health insurance amounting to $1,000, sum up the insurance and the eligible wages and multiply the resulting amount by 50 percent. In this scenario, your total credit amount would be $3,000.

In cases where you have more than one employee, remember that the maximum eligible wage per employee is $10,000. For example, if you have three employees and two of the employees each receive $10,000 in qualified wages while the third employee gets $20,000 in qualified wages, your maximum credit amount would be $15,000.

Other Available COVID-19 Tax Credits 

Other than the ERC, there is the Families First Coronavirus Response Act (FFCRA) paid leave credits. It came in place to assist employers in affording employees paid sick leave resulting from coronavirus complications and family leave as stipulated under the FFCRA. These are refundable paid sick leave and family leave credits reimbursable to employers who provide paid leave during the pandemic.

It is essential to note that employers can take both the paid leave and Employee Retention credit, but cannot claim the two using the same employee salaries. For assistance with claiming your employee retention credit, please contact your CPA.