If you purchased energy-saving equipment for your home during 2009, or will during 2010 you may be eligible for a tax credit. The credit is equal to 30% of the cost, usually up to a maximum of a $1,500 credit.
Specifically, there are two separate credits, with the first being the Nonbusiness Energy Property Credit. This credit applies to homeowners who purchase high-efficiency heating and air conditioning systems, water heaters, stoves, and the cost of installation. Additionally, energy-efficient windows, doors, insulation, and roofs may also qualify, but the installation costs don’t count. The credit is equal to 30% of the qualifying cost up to $5,000 for a maximum credit amount of $1,500.
The second credit is the Residential Energy Efficient Property Credit. This credit is for someone who is looking to invest large sums of money to save on energy costs. The credit amount is also equal to 30% of the cost of equipment, but there is usually no limit to the credit amount. Qualifying equipment includes solar hot water heaters, solar electric systems, geothermal heat pumps, and wind turbines.
To determine if the equipment you purchase qualifies for these tax credits, you will first need to check the manufacturer’s tax credit certification statement. Not all energy efficient equipment qualifies, which is why it is important to do your research before making a purchase.
Monday, January 11, 2010
Frequently Asked Questions (and Answers)
I thought that it would be informative to list some of the questions that I have been recently asked, along with the answers. I can only guess about the future of the estate tax for 2010 and beyond, but I will have an answer about this once legislation is actually passed.
Q: What is the IRA contribution limit for 2009 and the due date?
A: The maximum amount is $5,000 with a catch-up contribution of $1,000 for taxpayers over age 50. There may be a limitation of the deductibility of traditional IRA’s if you have a retirement plan at work, and there is an income limitation for the contribution of Roth IRA’s. The due date is 4/15/10 for 2009 contributions.
Q: Is it better to file a separate tax return from my spouse?
A: Also known as “Married Filing Separately,” usually results in a higher amount of taxes being paid, but can be advantageous in certain situations. We always do an analysis to see if this is better for our married clients.
Q: Does an extension also extend the amount of time I have to pay my taxes?
A: An extension only extends the amount of time to file your return, but if you owe taxes, then you will incur penalties and interest.
Q: Do I need to keep receipts for my donations?
A: Yes, you need receipts for all donations, but if the donation was less than $250, a cancelled check is sufficient.
Q: Should I pay my property taxes ahead of time so that I can deduct that payment on my return?
A: It depends on which year you expect to be in a higher tax bracket. You must also take into consideration if you are not subject to the AMT tax, which leads to the next question.
Q: What is the AMT tax?
A: AMT, which stands for “Alternative Minimum Tax” is a tax that parallels the income tax. It was originally design to prevent wealthy individuals from paying zero income taxes. The most common difference between these two taxes is that the AMT does not allow for the deduction of state and local taxes. Taxpayers are responsible for paying whichever tax is greater.
Q: Do I have to make estimated tax payments, and If so, why?
A: Usually self-employed taxpayers, retirees, and anyone who has income from sources that do not have taxes withheld are required to make quarterly estimated tax payments. If you need to make estimated payments and do not, you may be subject to underpayment penalties.
Q: What is the IRA contribution limit for 2009 and the due date?
A: The maximum amount is $5,000 with a catch-up contribution of $1,000 for taxpayers over age 50. There may be a limitation of the deductibility of traditional IRA’s if you have a retirement plan at work, and there is an income limitation for the contribution of Roth IRA’s. The due date is 4/15/10 for 2009 contributions.
Q: Is it better to file a separate tax return from my spouse?
A: Also known as “Married Filing Separately,” usually results in a higher amount of taxes being paid, but can be advantageous in certain situations. We always do an analysis to see if this is better for our married clients.
Q: Does an extension also extend the amount of time I have to pay my taxes?
A: An extension only extends the amount of time to file your return, but if you owe taxes, then you will incur penalties and interest.
Q: Do I need to keep receipts for my donations?
A: Yes, you need receipts for all donations, but if the donation was less than $250, a cancelled check is sufficient.
Q: Should I pay my property taxes ahead of time so that I can deduct that payment on my return?
A: It depends on which year you expect to be in a higher tax bracket. You must also take into consideration if you are not subject to the AMT tax, which leads to the next question.
Q: What is the AMT tax?
A: AMT, which stands for “Alternative Minimum Tax” is a tax that parallels the income tax. It was originally design to prevent wealthy individuals from paying zero income taxes. The most common difference between these two taxes is that the AMT does not allow for the deduction of state and local taxes. Taxpayers are responsible for paying whichever tax is greater.
Q: Do I have to make estimated tax payments, and If so, why?
A: Usually self-employed taxpayers, retirees, and anyone who has income from sources that do not have taxes withheld are required to make quarterly estimated tax payments. If you need to make estimated payments and do not, you may be subject to underpayment penalties.
Friday, December 4, 2009
Expanded First-Time Homebuyer Credit
The first-time homebuyer credit has been extended and is now also available for long-time homeowners. This is currently one of the most generous tax breaks for individuals.
Here’s how it works for a first-time homebuyer: a first-time homebuyer is eligible for a credit of $8,000 if they purchase a principal residence before April 30, 2010 and close before June 30, 2010. In order to qualify for the full credit amount, your modified adjusted gross income cannot exceed $125,000 or $225,000 for married couples filing jointly. The full phase-out amounts are $145,000 or $245,000 for married couples filing jointly to receive a partial credit. This is an increase to the original income limitations of $75,000 or $150,000 for joint filers.
For long-time homeowners: after November 6, 2009, long-time homeowners are eligible for a credit of $6,500 if they have lived in the same principal residence for any five-consecutive year period during the period that ended on the date the new home is purchased. The same income limitations apply.
Along with the new law there are also some newer restrictions. The credit is disallowed if the purchase price exceeds $800,000, you must be at least 18 years old on the date of purchase, and a dependent is not eligible for the credit. Since this credit is so generous and fraudulent returns have been filed, the IRS now requires a settlement statement to be attached to the return. The IRS also has the authority to deny the credit without having to audit your return.
Here’s how it works for a first-time homebuyer: a first-time homebuyer is eligible for a credit of $8,000 if they purchase a principal residence before April 30, 2010 and close before June 30, 2010. In order to qualify for the full credit amount, your modified adjusted gross income cannot exceed $125,000 or $225,000 for married couples filing jointly. The full phase-out amounts are $145,000 or $245,000 for married couples filing jointly to receive a partial credit. This is an increase to the original income limitations of $75,000 or $150,000 for joint filers.
For long-time homeowners: after November 6, 2009, long-time homeowners are eligible for a credit of $6,500 if they have lived in the same principal residence for any five-consecutive year period during the period that ended on the date the new home is purchased. The same income limitations apply.
Along with the new law there are also some newer restrictions. The credit is disallowed if the purchase price exceeds $800,000, you must be at least 18 years old on the date of purchase, and a dependent is not eligible for the credit. Since this credit is so generous and fraudulent returns have been filed, the IRS now requires a settlement statement to be attached to the return. The IRS also has the authority to deny the credit without having to audit your return.
Friday, October 30, 2009
Buy or Lease?
When thinking of buying vs. leasing we usually think of cars, but did you know that you can lease just about anything? Personal computers, apartments and houses, business equipment, and even employees can all be leased. Which is the best way?
First, there is no best way because each decision should be made on an individual basis. I know that we want to know an exact answer, but there really is none. Let’s look at buying vs. leasing a car for a business owner.
If you lease a car for your business you are generally able to deduct your lease payments as expenses. When financing or buying the same car you will generally be able to deduct your interest payments and a portion of the purchase price as depreciation, which may be an amount that is lower than your loan payments.
It sounds like leasing may be a better deal, right? In many cases it is for tax purposes, but did you know that you may be eligible to take an extra $8,000 in depreciation expense during 2009? For this year financing or purchasing a car is usually more beneficial from a tax standpoint. But are taxes the only factor to consider?
Other factors to consider are how long you intend to keep your car, how many miles you drive, how well the car maintains its value, or just personal preference (meaning that you may want to drive a newer car every two to three years). The decision should be thought out carefully, and similar questions should be asked when purchasing or leasing other items, such as computers, equipment, or furniture.
First, there is no best way because each decision should be made on an individual basis. I know that we want to know an exact answer, but there really is none. Let’s look at buying vs. leasing a car for a business owner.
If you lease a car for your business you are generally able to deduct your lease payments as expenses. When financing or buying the same car you will generally be able to deduct your interest payments and a portion of the purchase price as depreciation, which may be an amount that is lower than your loan payments.
It sounds like leasing may be a better deal, right? In many cases it is for tax purposes, but did you know that you may be eligible to take an extra $8,000 in depreciation expense during 2009? For this year financing or purchasing a car is usually more beneficial from a tax standpoint. But are taxes the only factor to consider?
Other factors to consider are how long you intend to keep your car, how many miles you drive, how well the car maintains its value, or just personal preference (meaning that you may want to drive a newer car every two to three years). The decision should be thought out carefully, and similar questions should be asked when purchasing or leasing other items, such as computers, equipment, or furniture.
Monday, October 26, 2009
Estate Planning Basics
No one wants to think of the inevitable, but there are some basic points regarding estate planning we should all know. There are complex trusts and gifting strategies that can be incorporated, but let’s talk about first things first. Do you have a will? How do you own your assets? Are your beneficiaries updated in your insurance policies or retirement plans?
A will is your last will and testament, which spells out your wishes when you become deceased. With a properly set-up will, your assets will transfer to the beneficiaries you desire. Without a will your assets will be distributed according to state law, and your spouse or children may not receive all of your assets. Additionally, if you have children you will need to appoint a guardian to take care of them. It is important to see a qualified attorney to handle this for you. Do not attempt this yourself. We can refer you to an attorney that best fits your needs.
The way you own assets also affects the way assets are distributed upon death, such as your house. The two ways are tenants in common and joint tenancy. As tenants in common, your share of the house is passed to your heirs designated in your will. With joint tenancy, your share is passed to the surviving joint tenant, regardless of what your will states. It is important to make sure your assets are owned in the way that best suits your needs.
Life insurance is separate from your will. You will need to designate a beneficiary when purchasing a policy, and the same applies to your retirement accounts. Upon death the proceeds will be automatically transferred to your beneficiaries. This is why it is critical to update your beneficiaries periodically. Can you imagine if you are divorced and never changed your life insurance beneficiary who is now your ex-spouse? The answer is obvious – your ex-spouse will be very happy!
Many people tend to think that estate planning is only for the wealthy or they don’t need an estate plan. It can be a costly mistake to feel this way, especially since simple wills are not very expensive, and it doesn’t cost money to change your beneficiaries of your life insurance or retirement plans.
A will is your last will and testament, which spells out your wishes when you become deceased. With a properly set-up will, your assets will transfer to the beneficiaries you desire. Without a will your assets will be distributed according to state law, and your spouse or children may not receive all of your assets. Additionally, if you have children you will need to appoint a guardian to take care of them. It is important to see a qualified attorney to handle this for you. Do not attempt this yourself. We can refer you to an attorney that best fits your needs.
The way you own assets also affects the way assets are distributed upon death, such as your house. The two ways are tenants in common and joint tenancy. As tenants in common, your share of the house is passed to your heirs designated in your will. With joint tenancy, your share is passed to the surviving joint tenant, regardless of what your will states. It is important to make sure your assets are owned in the way that best suits your needs.
Life insurance is separate from your will. You will need to designate a beneficiary when purchasing a policy, and the same applies to your retirement accounts. Upon death the proceeds will be automatically transferred to your beneficiaries. This is why it is critical to update your beneficiaries periodically. Can you imagine if you are divorced and never changed your life insurance beneficiary who is now your ex-spouse? The answer is obvious – your ex-spouse will be very happy!
Many people tend to think that estate planning is only for the wealthy or they don’t need an estate plan. It can be a costly mistake to feel this way, especially since simple wills are not very expensive, and it doesn’t cost money to change your beneficiaries of your life insurance or retirement plans.
Wednesday, October 21, 2009
Are You Forgetting About Your Old Corporation?
You have a great idea for a new business, so you naturally take the next step to move your idea forward. You incorporate your business. This may be a wise choice to make, but what happens if your new company never becomes active and you ignore it? Or what about a corporation you have that was once active and is now dormant? Should you really care anymore?
When you own an inactive corporation that you have been ignoring, this can create an ever-enlarging tax liability. Even though the corporation is inactive, you are still required to file federal and state income tax returns and possibly sales tax returns.
A New Jersey corporation still continues to be liable for minimum corporate taxes, even if it doesn’t have any income or assets. The minimum tax is currently $520, which can easily double after several years go by due to interest and penalties. Between late filing penalties, late payment penalties, and interest assessments, there is no escape. If your corporation was registered to collect sales taxes and has no longer been submitting sales tax returns, the problem becomes worse. Additionally, the IRS assesses monthly late fees for unfiled corporate and partnership returns.
I think that I am making my point that you need to take action. I have been coming across this situation more and more. If you have an old corporation or partnership, please contact our office so that we can advise you on the proper course of action.
When you own an inactive corporation that you have been ignoring, this can create an ever-enlarging tax liability. Even though the corporation is inactive, you are still required to file federal and state income tax returns and possibly sales tax returns.
A New Jersey corporation still continues to be liable for minimum corporate taxes, even if it doesn’t have any income or assets. The minimum tax is currently $520, which can easily double after several years go by due to interest and penalties. Between late filing penalties, late payment penalties, and interest assessments, there is no escape. If your corporation was registered to collect sales taxes and has no longer been submitting sales tax returns, the problem becomes worse. Additionally, the IRS assesses monthly late fees for unfiled corporate and partnership returns.
I think that I am making my point that you need to take action. I have been coming across this situation more and more. If you have an old corporation or partnership, please contact our office so that we can advise you on the proper course of action.
Monday, September 14, 2009
What is the Difference Between an LLC, S-Corp, C-Corp, and Sole Proprietor?
Business owners have several choices of how they can operate their business. The decision should be well thought out and be able to meet your objectives. Here are some of the pros and cons of each structure:
The easiest form of operating your business is as a sole proprietor. A sole proprietor has a lighter administrative burden because you account for your business activity on your individual tax return. Also, you may not need to file quarterly payroll tax returns, and may not need worker’s comp insurance. The downside to operating as a sole proprietor is unlimited legal liability, high self-employment taxes, and a greater potential to be audited by the IRS.
A limited liability company offers greater legal protection than a sole proprietor, and is also extremely flexible. You may have the option to be taxed as a sole proprietor, partnership, C-corporation, or S-corporation. Usually, single-member LLC’s are taxed as sole proprietors, which means that you have the potential to pay high self-employment taxes.
A C-corporation offers legal protection like an LLC. The drawback is that you have to abide by more legal formalities, and also pay corporate taxes. Then, when you want to distribute the profits, you will pay taxes yet again as a dividend. C-corporations have their place, but are generally suitable for larger corporations.
A variation of the C-corporation is the S-corp. An S-corp operates just like a C-corporation, but avoids the corporate level tax by taxing profits on the owner’s individual tax return and potentially saves self-employment taxes. The downside to an S-corp is a higher administrative burden.
As you can see there are many pros and cons to each business structure and the decision should not be taken lightly. If you are thinking about choosing or changing your business structure, please call our office so we can advise you.
The easiest form of operating your business is as a sole proprietor. A sole proprietor has a lighter administrative burden because you account for your business activity on your individual tax return. Also, you may not need to file quarterly payroll tax returns, and may not need worker’s comp insurance. The downside to operating as a sole proprietor is unlimited legal liability, high self-employment taxes, and a greater potential to be audited by the IRS.
A limited liability company offers greater legal protection than a sole proprietor, and is also extremely flexible. You may have the option to be taxed as a sole proprietor, partnership, C-corporation, or S-corporation. Usually, single-member LLC’s are taxed as sole proprietors, which means that you have the potential to pay high self-employment taxes.
A C-corporation offers legal protection like an LLC. The drawback is that you have to abide by more legal formalities, and also pay corporate taxes. Then, when you want to distribute the profits, you will pay taxes yet again as a dividend. C-corporations have their place, but are generally suitable for larger corporations.
A variation of the C-corporation is the S-corp. An S-corp operates just like a C-corporation, but avoids the corporate level tax by taxing profits on the owner’s individual tax return and potentially saves self-employment taxes. The downside to an S-corp is a higher administrative burden.
As you can see there are many pros and cons to each business structure and the decision should not be taken lightly. If you are thinking about choosing or changing your business structure, please call our office so we can advise you.
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