At some point during
each tax season, there is a moment when I notice a recurring
trend or theme that is unique and
fascinating to that specific tax season. So what is this year's most
For the 2017 tax season, what I found most fascinating
is the number of clients who installed solar panels on their home during 2016.
People who added solar property to their homes are eligible to claim a federal
tax credit equal to 30% of the costs incurred.
Remember, a tax credit is a
dollar for dollar reduction in the taxes you owe. Spending $40k on solar
panels for your home, therefore, translates to a $12k reduction in the federal
income taxes you'll pay that year. You report this valuable tax
break on a Form 5695.
Many states allow taxpayers to
claim a Solar tax credit as well. For example, Massachusetts allows a tax
credit of up to $1,000 while New York allows up to $5,000 in tax savings for installing solar.
solar electric property costs. Qualified solar electric property costs are
costs for property that uses solar energy to generate electricity for use in
your home located in the United States. No costs relating to a solar panel or
other property installed as a roof (or portion thereof) will fail to qualify
solely because the property constitutes a structural component of the structure
on which it is installed. The home doesn't have to be your main home.
solar water heating property costs. Qualified solar water heating property
costs are costs for property to heat water for use in your home located in the
United States if at least half of the energy used by the solar water heating
property for such purpose is derived from the sun. No costs relating to a solar
panel or other property installed as a roof (or portion thereof) will fail to
qualify solely because the property constitutes a structural component of the
structure on which it is installed. To qualify for the credit, the property must
be certified for performance by the nonprofit Solar Rating Certification
Corporation or a comparable entity endorsed by the government of the state in
which the property is installed. The home doesn't have to be your main home.
Please note that the solar credit
has been extended through 2021. However, the full 30% tax credit applies
only through 2019, then the credit decreases to 26% of eligible costs incurred for 2020,
and then decreases again to 22% for 2021.
Trends and Observations
Here are the most interesting trends that I observed
during the prior 5 tax seasons:
The number of clients who instructed me to allocate $3
of their tax liability to the Presidential Election
Campaign Fund, due primarily to the craziness brought on
by the Presidential Election.
The year of the energy efficient tax credit with lots of
my clients purchasing solar panels, electric cars, and
even re-charging stations for those electric cars,
including my long-time Dr. Jim who purchased all three.
With a variety of tax hikes taking hold in 2013, the trend that tax season
was higher taxes on lower income for high-income taxpayers, with many clients
getting stuck paying obscenely high balances due.
This was the first tax season that I noticed a sizable uptick in the number of
individuals taking advantage of Health Savings Accounts.
Record low interest rates meant that many homeowners refinanced
their home mortgages at least once during 2011, including all but one or two of
my clients who had a mortgage.
Considering the purchase of a new fuel-efficient car in 2017? If
you are, the IRS still offers tax credits up to $7,500 on
all-electric and plug-in hybrid cars that you would claim on
your 2017 tax return.
defines the vehicle requirements as follows: “This is a new
vehicle with at least four wheels that Is propelled to a
significant extent by an electric motor that draws electricity
from a battery that has a capacity of not less than 4 kilowatt
hours and is capable of being recharged from an external source
The U.S. Dept of
Energy maintains a comprehensive list of qualifying cars by make and model
that you can view:
As expected, there
are some items in the fine print to note:
must have a gross weight of less than 14,000 pounds.
You must be
the owner of the vehicle to claim the tax credit. If you’re leasing a
car, the credit stays with the manufacturer that’s offering the lease,
so you won’t be claiming that tax credit on your return. You should
benefit as a consumer regardless, as the manufacturer generally factors
the credit into reduced lease payments.
Conventional hybrids and clean diesel cars at one time qualified for tax
credits, but no longer do.
does phase out credits for particular models as sales volume increases,
so it’s always smart to make sure your make and model still qualifies
before making a purchase with a tax credit in mind.
SPRING CLEAN UP: CLEAN OUT YOUR TAX FILES AND RECORDS
With the April 15th deadline still a recent memory, most of us probably still
have our tax records piled up somewhere in our homes. Why not take this
opportunity to shred all the documents that you no longer need to keep?
How long do you
need to hold onto your tax records? According
to the IRS:
records make it easier to prepare a tax return and help provide answers if your
return is selected for examination, or to prepare a response if you receive an
What to Keep - Individuals.
In most cases, keep records that support items on your tax return for at
least three years after that tax return has been filed.
before the due date are treated as filed on the due date.
Examples include bills, credit
card and other receipts, invoices, mileage logs, canceled, imaged or
substitute checks or other proof of payment and any other records to support
deductions or credits claimed. You should typically keep records relating to
property at least three years after you've sold or otherwise disposed of the
property. Examples include a home purchase or improvement, stocks and other
investments, Individual Retirement Account transactions and rental property
What to Keep - Small Business
Owners. Typically, keep all your employment tax records for at least
four years after the tax becomes due or is paid, whichever is later. Also,
keep records documenting gross receipts, proof of purchases, expenses, and
assets. Examples include cash register tapes, bank deposit slips, receipt
books, purchase and sales invoices, credit card charges and sales slips.
Forms 1099-Misc, canceled checks, accounts statements, petty cash slips and
real estate closing statements. Electronic records can included databases,
saved files, e-mails, instant messages, faxes and voice messages.
There is no
period of limitations to assess tax when a return is fraudulent or when no
return is filed. If income that you should have reported is not reported, and it
is more than 25% of the gross income shown on the return, the time to assess is
6 years from when the return is filed.
For filing a claim for credit or refund,
the period to make the claim generally is 3 years from the date the original
return was filed, or 2 years from the date the tax was paid, whichever is later.
For filing a claim for a loss from worthless securities the time to make the
claim is 7 years from when the return was due.
For 2016, the standard deduction for a single individual is $6,300 and
for a married couple is $12,600. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2016, the personal exemption is $4,050. Individuals will claim a
personal deduction for themselves, their spouse, and their dependents.
The maximum earnings subject tosocial security taxes is $127,200
for 2017, up from $118,500 for 2015 and 2016.
The standard mileage rateis $.535 per business mile as of
January 1, 2017, down from $.54 for 2016.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $18,000 in 2015, 2016 and 2017, up from $17.5k in 2014.
And if you'll be 50 or older by December 31st, you can contribute an extra
$6,000 into your 401(k) or 403(b) account this year.
The maximum annual contribution to your IRA is $5,500 for 2014
through 2017. And if you turn 50 by December 31st, you can contribute an
extra $1,000 that year. You have until April 15, 2017 to make your 2016
In a shocking development, the
IRS recently announced that they will be honoring the FICA tax refunds
submitted by residency programs and individual doctors. The catch is
that only FICA taxes paid prior to 4/1/05 qualify.