The 2009-2010 Making Work Pay tax credit can reduce tax due and increase a tax refund by up to $400.00, and $800 if married and filing taxes jointly. The tax credit is available to different tax filers at differing income level caps; tax filers with Adjusted Gross Incomes (AGIs) below $75,000, and tax filers who are married filing jointly with an AGI below $150,000 may qualify for the Making Work Pay tax credit in full.
The credit phases out at a 2% rate of income over the $75K and $150K caps, and is eventually eliminated with an added $20K and $40K respectively. To illustrate the phase out, 2% of $20,000 is $400 which is the maximum Making Work Pay tax credit a single tax filer can receive.
How to qualify for the Making Work Pay Tax Credit:
The Making Work Pay tax credit is a tax credit available to income earning tax payers for the tax years 2009 and 2010. This credit is recorded on line 63 of the 2009 IRS Form 1040 and line 40 of the IRS 2009 1040A. To qualify for the Making Work Pay tax credit in full requires the following criteria to be met. Otherwise the credit is either reduced, one is ineligible to claim it, or an alternative tax credit is claimed i.e. the Government Retiree tax credit also claimed using Schedule M.
• Adjusted Gross Income (AGI) below $75,000 if not married filing jointly
• AGI below $150,000 if married filing jointly
• Non-receipt of Recovery Rebate Credit of $250-$500
• Non-receipt of Government pension payments of $250-$500
• Income from employment or self-employment
According to the U.S. Internal Revenue Service, some employers may have reduced income withholdings from employee paychecks. This can be determined by inquiring with an employer human resources department. Either way, the Making Work Pay tax credit may be claimed, however if employee withholdings were/are reduced in 2009 or 2010. this may mean the tax credit could only reduce the amount of tax owed rather than increase the amount of tax refunded.
To further illustrate how the credit works, if tax withholding is reduced by $400.00 for the tax year on a $40,000 AGI, that $400.00 will still be owed when filing taxes all other factors held constant. If the Making Work Pay tax credit is not claimed in this scenario, the benefits of the credit are not realized because taxes will paid without the credit.
IRS Forms used to claim the Making Work Pay credit
To claim the Make Work Pay tax credit an IRS Schedule M will need to be completed and sent to the IRS. If you claim the Make Work Pay tax credit and are filing taxes online, make sure the online tax filing service has this form available before filing taxes with that service to avoid complications. Schedule M and other required forms for filing the Make Work Pay tax credit are listed below:
• 2009 IRS Form 1040 :A different form 1040 may be required
Making Work Pay Tax credit tips
The Making Work Pay tax credit is a limited time tax credit. The tax credit expires at the end of tax year 2010. This credit can benefit income earners with potentially lower taxable income or increased tax refund. In a sense this can be perceived as a tax subsidy to U.S. tax payers. For additional information on the Making Work Pay tax credit the following IRS website pages me be of assistance.
• The following IRS website pages about the Making Work Pay tax credit provide additional information on the tax credit which may be helpful in understanding and claiming it.
Making Work Pay Five facts about the making work pay tax credit (IRS)
• It is important to claim the Making Work Pay tax credit if you are eligible. Otherwise, if your employer reduced withholdings and the credit is not claimed, you may end up paying too much tax.
• For those who can receive a refund from claiming the Making Work Pay tax credit, a reduced refund may be received from not claiming the tax credit.
• Line 13 of Schedule M subtracts Recovery Rebate Credit from the Making Work Pay tax credit
• Schedule M phases out qualification for the Making Work Pay tax credit by multiplying income in excess of the cap by 2% then subtracting the result from the credit qualified for. Ex: 2% of $10,000 additional income=$200 $400-$200=$200.
• Total phase out of the Making Work Pay Tax Credit beings at $95,000 for tax filers who qualify for the whole credit are not married filing jointly, and $190,000 for tax filers who qualify for the full credit and are married filing jointly.
Source: http://www.irs.gov (U.S. Internal Revenue Service)
Showing posts with label tax credits. Show all posts
Showing posts with label tax credits. Show all posts
Tuesday, March 8, 2011
Sunday, February 13, 2011
Tax Incentives for your Energy Efficient Home
Tax incentives for your energy efficient home are designed to 1) encourage national energy efficiency, 2) help consumers do so without going bankrupt and 3) to assist with economic stimulus. The energy efficiency incentives work by discounting the cost of the qualified home improvements on top of the cost savings those improvements make possible through energy efficiency.
The Internal Revenue Service and U.S. Department of Energy illustrate the tax incentives for your energy efficient home on their websites. The first two of the following three energy efficiency tax incentives are reported by the IRS news wire, and are listed below. The third incentive is also illustrated via the U.S. Department of Energy. These incentives can save a tax payer almost a third of the cost of upgrading a home for energy efficiency and take the form of tax credits rather than deductions.
How to make the most of energy efficient tax credits
Making the most of tax incentives for your energy efficient home involves understanding your costs. This is because a sunk cost into an energy efficient appliance, electricity supply or home improvement usually cannot be retrieved instantly. Thus, it is 1) important to know if the cost is affordable, 2) if the savings from the energy efficient cost can be realized effectively, and 3) if the tax incentive significantly improves the likelihood of 1 and 2.
To illustrate the realization of number 3 in the previous paragraph, a homeowner decides the cost of $10,000 worth of solar panels after installation must be recovered within 3-5 years in order for it to be worthwhile. Otherwise, the cost is too high because he doesn’t plan on living in the home for more than 5 years and wants to benefit from the savings.
After taking the non business energy property tax credit, the homeowner has lowered the cost of the solar panels to $8,500 through lower federal income taxes. He later learns that a similar state tax credit exists and claims an additional $500 using that for a remaining cost of $8,000. The solar panels save the homeowner $125 per month in electricity costs which is $1,500 per year. The homeowner also claims the Residential Energy Conservation Subsidy Exclusion credit after consulting with his accountant. This additional tax incentive saves the homeowner and additional $2,800. Thus, after the first year, the homeowner has recouped $6,300 or 63% of the cost of his solar panels and expects to recover the remaining cost in approximately 2.5 years.
(1) Non-Business Energy Property Tax Credit:
The Nonbusiness Energy Property Tax credit became law in 2009 and is set to expire at the end of 2010 meaning it can only be claimed on a 2009 or 2010 tax filing. The credit assists homeowners recover the cost of energy efficient improvements to their homes. Qualifying improvements include insulation and energy efficient window and door installation among other things. The credit is good for 30% of the cost up to $1,500 according to the IRS. (IRS)
(non-business)
(2) Residential Energy Efficient Property Credit:
IRS Form 5695 can be completed to claim the Residential Energy Efficient Property Credit. The residential Energy Efficient Property Credit has a cap of $2000 in addition to a cap on the percentage cost of a home improvement. This cap is 30% of cost like the Nonbusiness Energy Property Credit. The improvements that qualify for this credit can be viewed at the energystar.gov website and include geothermal, wind and solar home electricity sources. This credit does not expire until 2016 according to the U.S. Department of Energy. This information and other details about the credit can be found via IRS Notice and applicable law.
Investment related energy efficient tax credits
The following two energy efficiency tax credits are related to investments in either energy efficiency projects or utility improvements. These tax credits allow investors to potentially increase returns on investment and homeowners to potentially recoup additions costs associated with home improvements related to the installation of specific energy efficient equipment such as solar energy systems.
(3) Energy Investment Tax Credit:
This tax credit claim is made using IRS Form 3468. Private investors who invest money in qualifying energy efficient power producing ‘projects’ can credit 30% of their investment provided that it qualifies for the tax credit. This additional credit has the potentially to positively affect retirement planning and other financial planning as provided the investment does not decline in value, the credit can be viewed as a 30% return on investment. However, for this return to be directly realized, the tax credit must also be refundable if no income tax or capital gains tax at or above 30% of the cost of the investment exists. Other ways to benefit from the Energy Investment Tax Credit is via investment in businesses that can claim this credit.
(4) Residential Energy Conservation Subsidy Exclusion
Although open to interpretation according to the Database of State Incentives for Renewables & Efficiency, the installation of solar equipment or other energy efficient wind or geothermal equipment may be tax deductible of one’s gross income thereby lowering taxable income. This interpretation is made from Title 26, Subtitle A, Chapter 1, Subchapter B, Section 136 of the US Code which is statutory law made possible via the passing of legislative acts. (section 136)
This article discusses tax incentives for your energy efficient home but the content herein does not replace the advice of a tax attorney or accountant. The four tax credits discussed are federal incentives only and do not include the entirety of tax incentives for your energy efficient home. The tax incentives discussed are contained within the law governing the Internal Revenue Service and are further explicated via the IRS, U.S. Department of Energy and aforementioned Database of State Incentives.
The Internal Revenue Service and U.S. Department of Energy illustrate the tax incentives for your energy efficient home on their websites. The first two of the following three energy efficiency tax incentives are reported by the IRS news wire, and are listed below. The third incentive is also illustrated via the U.S. Department of Energy. These incentives can save a tax payer almost a third of the cost of upgrading a home for energy efficiency and take the form of tax credits rather than deductions.
How to make the most of energy efficient tax credits
Making the most of tax incentives for your energy efficient home involves understanding your costs. This is because a sunk cost into an energy efficient appliance, electricity supply or home improvement usually cannot be retrieved instantly. Thus, it is 1) important to know if the cost is affordable, 2) if the savings from the energy efficient cost can be realized effectively, and 3) if the tax incentive significantly improves the likelihood of 1 and 2.
To illustrate the realization of number 3 in the previous paragraph, a homeowner decides the cost of $10,000 worth of solar panels after installation must be recovered within 3-5 years in order for it to be worthwhile. Otherwise, the cost is too high because he doesn’t plan on living in the home for more than 5 years and wants to benefit from the savings.
After taking the non business energy property tax credit, the homeowner has lowered the cost of the solar panels to $8,500 through lower federal income taxes. He later learns that a similar state tax credit exists and claims an additional $500 using that for a remaining cost of $8,000. The solar panels save the homeowner $125 per month in electricity costs which is $1,500 per year. The homeowner also claims the Residential Energy Conservation Subsidy Exclusion credit after consulting with his accountant. This additional tax incentive saves the homeowner and additional $2,800. Thus, after the first year, the homeowner has recouped $6,300 or 63% of the cost of his solar panels and expects to recover the remaining cost in approximately 2.5 years.
(1) Non-Business Energy Property Tax Credit:
The Nonbusiness Energy Property Tax credit became law in 2009 and is set to expire at the end of 2010 meaning it can only be claimed on a 2009 or 2010 tax filing. The credit assists homeowners recover the cost of energy efficient improvements to their homes. Qualifying improvements include insulation and energy efficient window and door installation among other things. The credit is good for 30% of the cost up to $1,500 according to the IRS. (IRS)
(non-business)
(2) Residential Energy Efficient Property Credit:
IRS Form 5695 can be completed to claim the Residential Energy Efficient Property Credit. The residential Energy Efficient Property Credit has a cap of $2000 in addition to a cap on the percentage cost of a home improvement. This cap is 30% of cost like the Nonbusiness Energy Property Credit. The improvements that qualify for this credit can be viewed at the energystar.gov website and include geothermal, wind and solar home electricity sources. This credit does not expire until 2016 according to the U.S. Department of Energy. This information and other details about the credit can be found via IRS Notice and applicable law.
Investment related energy efficient tax credits
The following two energy efficiency tax credits are related to investments in either energy efficiency projects or utility improvements. These tax credits allow investors to potentially increase returns on investment and homeowners to potentially recoup additions costs associated with home improvements related to the installation of specific energy efficient equipment such as solar energy systems.
(3) Energy Investment Tax Credit:
This tax credit claim is made using IRS Form 3468. Private investors who invest money in qualifying energy efficient power producing ‘projects’ can credit 30% of their investment provided that it qualifies for the tax credit. This additional credit has the potentially to positively affect retirement planning and other financial planning as provided the investment does not decline in value, the credit can be viewed as a 30% return on investment. However, for this return to be directly realized, the tax credit must also be refundable if no income tax or capital gains tax at or above 30% of the cost of the investment exists. Other ways to benefit from the Energy Investment Tax Credit is via investment in businesses that can claim this credit.
(4) Residential Energy Conservation Subsidy Exclusion
Although open to interpretation according to the Database of State Incentives for Renewables & Efficiency, the installation of solar equipment or other energy efficient wind or geothermal equipment may be tax deductible of one’s gross income thereby lowering taxable income. This interpretation is made from Title 26, Subtitle A, Chapter 1, Subchapter B, Section 136 of the US Code which is statutory law made possible via the passing of legislative acts. (section 136)
This article discusses tax incentives for your energy efficient home but the content herein does not replace the advice of a tax attorney or accountant. The four tax credits discussed are federal incentives only and do not include the entirety of tax incentives for your energy efficient home. The tax incentives discussed are contained within the law governing the Internal Revenue Service and are further explicated via the IRS, U.S. Department of Energy and aforementioned Database of State Incentives.
Sources:
1. http://www.irs.gov (U.S. Internal Revenue Service)
2. http://www.dsireusa.org (Database of State Incentives for Renewables & Efficiency)
3. http://www.energy.gov (U.S. Department of Energy)
Friday, February 11, 2011
Should Volunteer Time be Tax Deductible?
Volunteer time that is tax deductible is intrinsically able to provide incentive for individuals to volunteer in addition to assisting potential increases in GDP, mental and physical health, and improve cultural and socio-economic factors important to a nation, economy and culture. In other words, tax-deductible volunteerism in the form of time spent volunteering or working as a volunteer, could facilitate a significant positive influence financially and nationally.
There are several variables to consider when weighing the benefits and disadvantages of tax deductions associated with volunteer work. Specifically, what are the costs to the government if any, how volunteer work increases GDP, why it can improve health and what benefits to culture and socio-economic standing it can have. The remainder of this article illustrates these issues and factors to demonstrate shy tax deductions to volunteer time are a good idea.
• Increases to Gross Domestic Product
Gross domestic product is the total value of all goods and services generated by a nation for a specific year. In the United States the GDP for 2009 was $14.26 Trillion according to the World Bank. An increase in volunteer work especially among the retiring baby boomer population could keep the workforce healthy and strong albeit through a transformed mechanism. It would be a waste to throw away the willingness, knowledge and ability of an experienced generation.
• Indirect boost to government revenue
A tax deduction for volunteer time would not cost the Government money because the volunteer time itself would increase Gross Domestic Product (GDP) and indirectly lower other government expenses to a greater degree than the tax deductions cost. Additionally, according to the New York State Office for the Aging, volunteer work can potentially increase government revenue.
To illustrate the above point, if GDP increases, so does the potential exports of products and services provided that the volunteer time and/or work has either a direct or indirect impact on those sectors of the economy impacting exports. The profit on those exports is taxed, so the Government would merely be shifting the tax but assisting greater wealth nationwide through improved exports. Furthermore, exports are just one area of the economy through which Government tax revenue can be obtained.
• Improvements to Mental Health
Work involving physical exercise and positive human interaction can be strongly linked to improvements in both mental and physical health on condition the work is performed within reason. That is to say, if some of the more negative consequences associated with working such as stress, don't outweigh the benefits then time spent volunteering can be beneficial to the health of a nation. . Countless studies have linked physical exercise to improved health and the more mentally and physically healthy a nation is, the less government subsidized health care costs will be thereby lowering government expenses further.
• Increases in volunteer work
The principles of capitalism mandate financial incentive yields productivity when such motive is linked to profit motives. Since retirees may have more time to volunteer and might want to maximize their retirement standard of living, such a program would also benefit this increasingly long lived portion of populations. Moreover, if there is a high deduction cap to volunteer work or none at all, this essentially makes the potential tax savings optimal. Not only does can potential tax savings assist in mobilizing a retiring and/or motivated workforce, it can also increase volunteer work statistically. Since volunteer work is known to be a good and positive thing, increases in volunteer work would also be good.
• Decline in poverty
Tax deductible volunteer time or work can also help reduce poverty, welfare programs and re-invigorate stagnant demographics of the economy to be more productive, happier and healthier. Volunteer work can do this if volunteer efforts are aimed at helping marginalized groups of people live better lives through programs such as habitat for humanity, concern America and the community service society.
In summary, all the aforementioned potential benefits of tax deductions for volunteer work comprise a net cultural enhancement in which several social, economic and medical aspects of a given demographic can benefit. In essence, tax deductible volunteer time has the potential to be a positive catalyst not just on the individual level, but also on the cultural and national levels.
Provided the incentive of tax deductibility is affective, many positive financial, and social changes can occur as a result. Should such results not occur, through low volunteerism despite a tax deduction, the government loses nothing because what isn't deducted, is paid in taxes. Consequently, a tax-deductible volunteer program really is worth considering in light of any one of the above variables.
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