Energy saving credits

TAX CREDIT FOR ENERGY-SAVING COSTS
-If you made your home more energy-efficient you may be entitled to a tax credit.
There are two categories that qualify for the credit:
1. Energy efficiency improvements
2. Residential energy property costs.
Energy efficiency improvements:
The first category includes
· Insulation that reduces heat loss
· Energy-saving exterior windows and doors
· Metal roofs pigmented with heat-reducing coatings.
Residential energy property costs:
The second category includes
· Qualified solar electric-generating equipment
· Solar water heating equipment
· Fuel cell equipment which converts a fuel into electricity by electrochemical means.

The energy efficiency credit is 10% of the cost subject to certain dollar limitations.
The Residential energy property costs credit is 30% of costs with dollar limitations.

The above is only intended to provide a broad general discussion of the subject. For further details--if you have made any such improvements-- you should look at Form 5696 and the related instructions at http://www.irs.gov/

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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.

Construction Acctg

TAXATION OF CONSTRUCTION CONTRACTS:

For construction costs you would report income and expense under either the Percentage-of-completion method or the Completed Contract method.
If you begin and complete a construction contract in the same tax year, you would report all income and expense on that year’s tax return. However if the construction period laps over two years, even if the total time is less than a year, you then use a different approach.

PERCENTAGE OF COMPLETION METHOD:
If you choose, or are required to use, the Percentage-of-completion method, you must calculate a percentage to be used in reporting income. The percent is determined by dividing the cost incurred during the year by the total estimated cost to be incurred for the entire contract. Suppose you had a contract to build something for $ 3 million. If you expect the total costs to be $2 million and have incurred $ 1 million in costs during the year, you would report half of the $ 3 million as income for the year. Your income would be $ 1.5 million and your expense would be the $ 1 million cost actually incurred and the profit would be $ 500,000 minus some overhead expense.

COMPLETED CONTRACT METHOD:
A small contractor can use the completed-contract method which seems less complicated. Under the completed contract method, you would report no income or expense until the contract was completed. You would report everything in the year it was completed.

PROGRESS PAYMENTS:
Generally a contractor receives progress payments based on percentage of completion regardless of how he reports his income. These payments would not be income. They would never exceed the total contract price, and would probably be less than the income reported if the percentage-of-completion method were used. If the completed contract method is used, any unused funds would be considered a loan from the buyer until the contract was completed.

Accounting entries to record income and expense:
Percentage-of-Completion method

• Debit Construction in Progress and Credit Cash or Accounts payable to record costs.
• Debit Cash and credit 'Progress Billings' or some similar liability account to record progress payments received.
• Debit Construction in Progress and Credit Income for profits recognized.
  
• Debit 'Progress Payments' and credit 'Construction in Progress' when the contract is completed.

Completed-Contract Method:
The first two entries would be the same.
Upon completion, you would debit a Cost of Sales account and credit Construction in Progress and would Debit Progress Billings and Credit Income. If there were a final payment not included in progress billings, you would debit Cash and Credit the final payment to Income.

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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.

EDUCATION-RELATED DEDUCTIONS AND CREDITS

-TUITION AND FEES - DEDUCTIONS AND CREDITS

There are several options. A professional tax-preparer can easily select the best option if his software works like mine does. I enter the amount of the education expenses and check a box to select the Hope credit and check the tax result. Then I deselect the Hope credit and check the box for the lifetime learning credit and see if that increased or decreased the tax. Finally, I check the box for the deduction and see what that does. I then select the one that reduces the tax the most. Sometimes one or more of these methods results in a zero amount due to the taxpayer’s income, the student does not qualify, or the expense does not qualify.

If you do it yourself, then you need information beyond the scope of this blog, and should download publication 970 from www.irs.gov Just type in 970 in the search box. Also, you should look at Forms and instructions for Form 1098-T, Form 8815, Form 8863. If you made an early withdrawal from an IRA look at the codes for penalty exclusions for Form 5329.

A Credit is not the same thing as a deduction.

There are several education-related tax provisions related to education expenses. Two arise frequently and can be confused with each other. One type is a credit and the other type is a deduction. A credit reduces your tax by the amount of the credit, but a deduction would only reduce your taxable income which only reduces it by a percent of the deduction.

Which should I take?

You may or may not qualify for all options .

Generally the credit is better than the deduction, but not always. There are two different credits, the Hope credit and the Lifetime learning credit. The credits have different income-related limitations than the deductions

Income limits for credits:
The credits are not available if your Adjusted Gross income (AGI) exceeds $ 110,000 on a Joint Return or $ 55,000 on other returns.

Income limits for the deductions:
Your AGI can be as high as $ 160,000 on a Joint return or $80,000 and still qualify for the deduction.

There are two different credits

The two credits are the Hope credit and the Lifetime learning credit. The Hope credit usually provides the best tax reduction, but the rules may prevent you from taking the Hope credit. The Hope credit is only available for the first two years of post-secondary education. The Lifetime learning credit does not have this limitation.

Rules That Apply to Both Credits and Qualified Education Expenses
Generally, qualified education expenses are amounts paid in
2006 for tuition and fees plus, in some cases, books, supplies and other costs as explained in Publication 970 .

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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.