Your Money Matters: End of year tax planning tips

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Cliff Morgan
Strategic Wealth Inc.
www.strategicwealthinc.com

Energy Tax Credits and Rebates

Government agencies, utilities and others offer a variety of tax credits, rebates and other incentives to support energy efficiency, encourage the use of renewable energy sources, and support efforts to conserve energy and lessen pollution.

Residential Renewable energy Tax Credit - the federal tax credit for residential energy property  applies to: solar-electric systems, solar water heating systems, fuel cells.
The Energy Improvement and Extension Act of 2008 extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008.
Other key revisions included an eight-year extension of the credit to December 31, 2016; the ability to take the credit against the alternative minimum tax; and the removal of the $2,000 credit limit for solar-electric systems beginning in 2009. A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer.

Electric Rebate Program – provides businesses with rebates based on the installation of energy efficiency equipment and system improvements

179D Energy Tax Deduction – EPAct – Energy Efficient Buildings - Section 1331 of the Energy Policy Act of 2005 enacted Section 179D of the Internal Revenue Code which provides federal tax deductions worth up to $1.80 per square foot for commercial buildings that have been newly constructed or retrofitted since December 31, 2005.

Plan Your Charitable Contributions

If you have made money in stocks or funds, you can make a contribution or transfer shares to a charitable organization, allowing them to sell the shares (they do not pay taxes on it), and receiving a charitable deduction for yourself – win/win!

If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct the amount that exceeds the fair market value of the benefit received.

For a contribution of cash, check, or other monetary gift (regardless of amount), maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution. In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.

Charitable contributions are deductible only if you itemize deductions. To be deductible, charitable contributions must be made to qualified organizations.

Choose the Correct CPA/Financial Advisor

He or she should be able to inform you of tax-savings options relating to business structure.  The right advisor will be able to assemble your tax plan with a far more efficient structure, using the right strategies, with the right combination of relative assets (looking beyond S-Corps and LLCs, etc) -that’s the key.  That’s how you make the most of your tax return and legally put yourself into the minimum tax bracket and tax level.  You should choose someone who can help you look and plan ahead for how to set yourself up, instead someone who is reacting to the way things have already gone.

Your tax adviser can also help you evaluate and strategize how to structure your income/assets year to year if you expect to be in the alternative minimum tax group. The alternative minimum tax, or AMT, affects taxpayers who have higher than average incomes, are married and have more than two children, own a home and live in a state with high incomes because it won't let them count certain deductions that would otherwise lower their taxes (such as dependents or children, state income taxes, property taxes, interest on second mortgages or home-equity loans and high medical expense). By strategizing with your adviser on how to perhaps exercise a stock option or take a bonus before year end, you may be able to get taxed at a lower AMT rate.

Don't Forget About Potential Deductions and Education Credits

Caution: Deductions Increase Your Audit Risk

To claim work related-expenses you must itemize deductions; Work-related expenses must exceed 2% of adjusted gross income; if you must pay the alternative minimum tax, you cannot take work-related deductions

Unreimbursed Employee Expenses (paid or incurred during tax year; for carrying on your trade or business of being an employee; ordinary and necessary)
Education that is work related
Legal fees related to your job
Licenses and regulatory fees
Medical exams required by an employer
Passport for business trip; Travel, transportation, entertainment, and gifts related to work
Business Liability Insurance
Depreciation on Computers
Dues to Chambers of Commerce and Professional Societies (Boards of trade, business leagues, civic or public service organizations, Unions, real estate boards, trade associations)
Work Clothes and Uniforms, Protective clothing
Tax preparation fees

Student Loan Interest Deduction
If your modified adjusted gross income (MAGI) is less than $75,000 ($150,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. This deduction can reduce the amount of your income subject to tax by up to $2,500. The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040's Schedule A.

There are two Education Credits available: the American Opportunity Tax Credit and the Lifetime Learning Credit.
An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund.

Make Maximum Contributions To Your Tax Advantaged Plans

If you have a High Deductible Health Plan, you may contribute to a Health Savings account (HSA). A tax advantaged medical savings account is available to taxpayers in the United States who are enrolled in a high-deductible health plan. The funds contributed to an account are not subject to federal income tax at the time of deposit. HSA funds may currently be used to pay for qualified medical expenses at any time without federal tax liability or penalty

Contribute the maximum to your defined contribution and benefit plans.

Traditional  401ks (defined contribution plan) and IRAs (Individual retirement accounts) allow taxpayers to deduct the value of contributions (to a limit) from taxable income but tax value of distributions made during retirement.

Roth IRAs and Roth 401ks generate no immediate tax deductions but allow distributions to be received tax-free after the worker has reached retirement age.