Clients Who Save the Planet Can Save on Taxes

As April 17 draws near, taxpayers across the country are taking a last look at their returns to make certain they claim every last exemption, credit or deduction they have coming to them. If 2006 was the year your clients “went green,” you may find that in addition to doing their part for the planet and cutting back on their energy costs, they are eligible to claim numerous tax credits created to reward efforts to save energy.

“Most people who bought alternative fuel vehicles last year are aware that there are tax benefits,” says Connie Kurtz, EA, an enrolled agent in Kensington, Md. told NAEA E@lert. “Yet, a lot of taxpayers who prepare their own returns without the help of a professional are unaware that if they installed metal roofs, insulation systems that reduce heat loss and gain, and exterior doors and windows, including skylights, they may be eligible to take a home improvement energy credit.”

In order to qualify for the credit, the property must meet criteria established by the 2000 Energy Conservation Code and its supplements. With a maximum credit of $500, most taxpayers consider it worthwhile to find out whether or not they meet the criteria.

Those who stocked up on appliances that have the EPA’s ENERGY STAR rating may wonder whether or not these purchases will affect their taxes. While the manufacturers of energy efficient clothes washers, dishwashers and refrigerators are eligible for tax breaks, the consumers that buy their products will find savings in lower monthly bills, but not in tax credits.

A sizable tax credit may be waiting for you if you put in solar panels, solar water heating equipment, or a fuel cell power plant last year.

“Installing a solar panel or solar water heating system allows you one credit equal to 30 percent of the qualified investment up to a maximum credit of $2,000,” Kurtz explains. “Be aware, though, that IRS pulls the plug on the credit if either system is used in heating a pool or hot tub.”

Credits are also provided for costs relating to the installation of:

  • An advanced main air circulating fan (up to a $50 credit);
  • A qualified natural gas, propane, or oil furnace or hot water boiler (up to a $150 credit); and
  • Energy-efficient heat pump water heaters, electric heat pumps, geothermal heat pumps, central air conditioners, and natural gas, propane, or oil water heaters (up to $300).

A tax credit can provide more significant savings than a deduction in that it directly reduces the amount of income tax you have to pay. A deduction reduces the amount of income subject to tax, resulting in a proportional deduction, not the dollar-for-dollar break a credit provides.

The items above are a good place to start, but by no means constitute an exhaustive list. A qualified tax professional thoroughly interviews clients to ensure that every possible opportunity to save money on their tax returns is explored.

You may like these other stories...

Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...
By Cathy Stopyra and Todd SimmensUnderpayment interest, refund interest, and penalties charged to businesses are just a few of the considerations the IRS calculates when determining taxation for a given company. Though...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.