Sunday, January 31, 2016

Appliances Don’t Qualify for the Energy Credit & Other Tax Tips

To stay informed of changes to the tax code, I attend an annual tax update seminar every January. Here are a few tips I learned from this year’s event:

The personal energy credit has been extended:

The $500 lifetime credit (10% of cost up to $500) for energy efficient improvements has been extended until 12/31/16.  I am excited about this one since we installed a new furnace and water heater in 2015 – although $500 doesn’t come anywhere close to covering 10% of what we spent. 

It is important to note appliances do not qualify as an energy efficient improvement despite the sales rep at your local appliance store* insisting they do.  According to Energy Star, upgrades to biomass stoves, air source heat pumps, central air conditioning, gas, propane, or oil hot water boilers, gas propane or oil furnaces and fans, insulation, roofs, water-heaters (non-solar) windows, doors and skylights do qualify if they are upgraded in an existing home that is your principal residence. New Construction and rentals do not apply.

Audits of charitable donations are on the rise:

Our speaker, who works as a tax preparer, has seen an increase in client audits of charitable donations in recent years. To make sure your donations are not disallowed make sure you have proper documentation.

For Cash donations under $250 you will need a cancelled check, credit card receipt or written communication from the charity.

Cash gifts over $250 must be substantiated by the charity. 

Noncash donations under $250 must be supported by receipt, written communication from the charity or written records.

$250 or over must be substantiated by the charity.

$500 or over must include acquisition detail.

$5000 or over requires written appraisal.

Documentation requirements:

Written support must include the name and location of organization, date of donation, description, value and condition.

Those coupons you receive with only a date stamp when you drop your donations off at a goodwill or charity drop boxes are not considered adequate substantiation. Our speaker has seen these types of donations disallowed.  With those coupons the IRS cannot verify you actually donated ten sweaters, they were worth $25 and were in excellent condition. Instead she recommends dropping items off at the charity’s main location the requesting applicable documentation.  If that isn’t possible she suggests taking photos of your donations.

You can stack these childcare deductions:

Child and dependent care credit

The child and dependent care credit is allowed for children under age 13 and other qualifying dependents.  Eligible expenses are limited to $3000 for one dependent, $6000 for two or more. Income limits do reduce the credit, but don’t phase it out completely.

Flexible spending FSA deductions

Take advantage of employer sponsored flexible spending FSA deductions.           You can contribute up to $5000 in employer sponsored FSA account.  The FSA plan then reimburses your dependent care expenses using pre-tax dollars.

You can’t use the same child care expenses for both the credit and the FSA deduction, but you can stack them.  Meaning if you have $8000 of annual expenses you can deduct $3000 as a tax credit and be reimbursed $5000 from an FSA plan.  Just remember a portion of the dependent care credit could be phased out due to income limits.

*According to an auditor I know who used to audit appliance stores the mark-up on appliances is 300%.

Do you have any tax saving tips to share?

Disease Called Debt


  1. It's really different here in Europe, so I don't have anything to share.. Those just seem too complicated to me :D

    1. I know. It is complicated. I'm actually for the flat tax despite being an accountant.

  2. Interesting! So I know very little about the energy credit... Is that the same one you could claim for installing things like solar panels? I wouldn't hope so because that seems like a very small deduction if so.

    1. I don't think so. According to Energy Star:
      Tax credits for Solar Energy Systems are available at 30% through December 31, 2019.The credit decreases to 26% for tax year 2020; drops to 22% for tax year 2021 then expires December 31, 2021."

  3. Interesting! So I know very little about the energy credit... Is that the same one you could claim for installing things like solar panels? I wouldn't hope so because that seems like a very small deduction if so.

  4. Doing your taxes earlier rather than later helps protect you against someone stealing your tax ID and filing in your name. Even if you usually delay because you owe money, you can go ahead and file and pay by April 18.

    1. This is a very good point and was actually brought up in the tax update I attended last year. According to the speaker, stealing your tax identity is actually the most common form of identity theft and an incredible nightmare to get straightened out.

  5. I was really excited to learn there's a tax credit for contributing to your IRA, even if it's a Roth, if you make a pretty low income. It made a nice chunk of change go back into my refund.

  6. These are great tips, thanks for sharing! We moved from South Carolina to Washington, so we donated mountains of clothes, shoes, toys, home goods, etc. I know we received some receipts from some of the donation locations, but not all. I'll have to look for them in our "moving box".

  7. Ugh I have yet to start my taxes....what an awesome post to reference, though! I love that you are so financially savvy - it gives me motivation to learn some of this stuff myself. I always just let Turbo Tax do it all...although the charitable thing is pretty applicable to me. I donate in $200 bunches every few weeks, so I rack up a ton of those and always keep the form from the charity. Thank goodness! Awesome post, Savvy!