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?
