Most of the other
manufacturers are not very close to the 60,000 threshold, so you can
still qualify for the full tax credit if you purchase one of their
hybrids. This tax credit is set to expire at the end of 2010. More information about the Hybrid Tax
Credit is available on
IRS Form 8910, Alternative Motor Vehicle Credit.
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Useful Links: FindAGoodCPA.com - Not a healthcare professional? Find a CPA or EA who understands the tax issues specific to you. IRS Web Site - for tax forms, publications, and general tax information.
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MONTHLY TAX NEWSLETTERAugust 2007CLOCK IS TICKING FOR ENVIRONMENTALLY FRIENDLY TAX BREAKS The tax code is full of a continually changing array of tax breaks. While some tax breaks are permanent, others are instituted for a set number of years. Back in 2005, the Energy Tax Incentives Act of 2005 was passed into law, rewarding those businesses and individuals for making certain energy efficient improvements. All of the Act's provisions had a limited shelf life, however, with most slated to expire at the end of 2007. Then, during 2006, President Bush signed the Tax Relief and Health Care Act of 2006 into law. Among it's many provision, this Tax Act extended some of the tax breaks of the 2005 Energy Tax Incentives Act through 2008. Let's look at when certain environmentally friendly tax breaks are set to expire. September 30, 2007 Thinking about buying a Toyota or Lexus hybrid vehicle? If so, you only have until September 30, 2007 to purchase one and qualify for the Hybrid Vehicle Tax Credit. As part of the 2005 Tax Act, a new Hybrid Vehicle Tax Credit was introduced to replace the $2,000 Clean Fuel deduction. To level the playing field for Ford and other newcomers into the hybrid market, the Act included the "Ford Escape Clause", causing the allowable tax credit to phase-out for a manufacturer once they have sold 60,000 hybrid vehicles subsequent to January 1, 2006. Toyota and Lexus hit that threshold during the second quarter of 2006, so no credit will be allowed for people purchasing their hybrids as of October 1, 2007. According to the IRS, here are the already reduced credits available on the 2007 Toyota & Lexus hybrids through September 30th:
December 31, 2007 You only have until the end of this year to make energy efficient improvements to your principal residence and still qualify for the $500 tax credit. The credit is equal to 10% of the money spent on the installation of certain energy efficient improvements to your home, including insulation and exterior windows, doors, and skylights. You can also take a tax credit for "qualified energy property" including up to $50 spent per circulating fan, $150 on furnaces or hot water boilers, and $300 on heat pumps, water heaters, and central air conditioning. The total combined tax credit applies for purchases made during 2006 and 2007, and is limited to a lifetime max of $500 per dwelling, with no more than $200 of the credit to be taken for replacement windows and skylights. What should you do if you were eligible for this tax credit in 2006, but forgot to claim it on the tax return you originally filed? Don't worry, you have until April 15, 2010 to file a Form 1040X, Amended Tax Return, for 2006 with the IRS. More information about the Residential Energy Property Credit is available on IRS Form 5695, Residential Energy Credits. December 31, 2008 The following two other provisions of the 2005 Energy Tax Act were extended for one additional year through 2008:
Green With Envy-ronmental Tax Breaks With energy costs on the rise, many individuals are looking for ways to make their homes, cars, and businesses more energy efficient. If making environmentally friendly expenditures is in your plans, why not beat the clock to take advantage of these expiring tax breaks and let the government subsidize a portion of the costs incurred? AVOID SURPRISES NEXT WINTER WITH A MID-YEAR TAX PROJECTION Tax planning is a year round process. One important step of the process is to work through an income tax projection each summer. That's the only way to ensure that you won't be surprised with either a huge tax refund or balance due next April. Annual Reconciliation A big flaw in the tax system is the annual reconciliation called the Form 1040 that every taxpayer completes and submits to the IRS each winter. The first step is to complete the required tax forms, taking advantage of all the tax breaks available to minimize your income tax liability for the year. In step two, you add up all the taxes you paid in during the year through withholdings and estimated tax payments. Step three is where things really get exciting. Now is the time to compare your tax liability with the taxes you paid in during the year. If the taxes paid in exceed your tax liability, you'll be getting a refund from the IRS. Otherwise, expect to write a check on April 15th. While the small percentage of taxpayers who actually plan ahead and work through a tax projection during the year are generally not surprised by the amount of taxes they owe or will have refunded, it's fair to say that most everyone else compares step three with rolling the dice at a casino. The Misleading W-4 Form A leading culprit of this uncertainty is the benign looking W-4 form. On the surface, the form seems easy enough to complete. Simply fill in your name, marital status, how many allowances you're claiming, and whether you want any additional taxes withheld from your pay. Like the W-4 form, the rules governing the withholding tables are simple enough to understand as well. Less taxes are withheld for people claiming to be married than those who claim single. Plus, less taxes are withheld with each additional allowance that is claimed. So what causes the W-4 form to backfire so often? There are two major underlying problems:
If you work for more than one employer, or if both you and your spouse work, you need to be very careful when you complete the W-4 Form. It's not uncommon for an individual with multiple employers, or a married couple comprised of two working spouses, to owe thousands of dollars in taxes because not enough taxes were withheld throughout the year due to how the W-4 was completed. Self-employed Individuals Tax planning for salaried individuals tends to be pretty straightforward. For the majority of people on salary, their income doesn't generally fluctuate much from year to year. And if there is a big fluctuation, their withholdings are automatically adjusted accordingly. Self-employed individuals don't have that luxury. Usually, their income changes significantly from year to year. Plus, chances are good that the person is remitting their taxes through quarterly estimates based on their prior year's tax return. The combination of these two factors results in the potential for big surprises for self-employed individuals each winter. Do The Math Some surprises are great, such as surprise birthday parties or perhaps receiving a sizeable gift from a long, lost relative you never met. When it comes to taxes, surprises generally aren't so great. If you work with a CPA or plan to start working with one for the first time, now's the time to touch base with your tax preparer and spend a few minutes working through a tax projection. For do-it-yourselfers, you have a few options. Either re-enter this year's projected information into your 2006 tax program and see how it comes out. For the most part, the tax rules didn't change substantially since last year, so this will give you a good idea as to where you stand with your taxes for 2007. Another suggestion is to make a copy of your 2006 tax return, and pencil in this year's numbers in the margin of each form. Even though this method is less precise, you should still be able to get a sense of this year's projected tax liability. However you decide to work through the math, taking a little time now will not only help you avoid any surprises next winter, but will also give you the remaining five months of 2007 to adjust your withholdings and quarterly estimates based on your tax projection. TAX AND FINANCIAL PLANNING CALENDAR FOR AUGUST, 2007
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