Time Running out for Home Energy Credits

The Internal Revenue Service reminded homeowners Monday that they still have some time left this year to make energy-saving and green energy home improvements and qualify for either of two home energy credits, but at least one of them needs to be placed in service before the end of the year to qualify for this year’s tax return.

The Nonbusiness Energy Property Credit is aimed at homeowners who install energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, the IRS noted, but can still provide substantial tax savings.
The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count. The credit can also be claimed for the cost of residential energy property, including cost of labor for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

 

The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011, however.
Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before Jan. 1, 2012, in order to qualify.
Homeowners who are going green should also check out the Residential Energy Efficient Property Credit, which is designed to spur investment in alternative energy equipment.
The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. There is no cap on the amount of the credit available, except for fuel cell property. Generally, labor costs are included when calculating this credit.

Not all energy-efficient improvements qualify for these tax credits, the IRS cautioned, so homeowners should check the manufacturer’s tax credit certification statement before they purchase any equipment. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s Web site or with the product packaging.
Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits, when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A. For more information, the IRS has created a YouTube video.

Three Tips for Employers Outsourcing Their Payroll

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.
Recent prosecutions of individuals and companies who - acting under the guise of a payroll service provider - have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following three tips from the IRS:

1. Employer Responsibility The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you - the employer - are the responsible party.
   
   If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.
   
2. Correspondence If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.
   
3. EFTPS Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.

The IRS web site – www.irs.gov has more information on the responsibilities of employers outsourcing payroll, payroll service providers and EFTPS.

Links:
Outsourcing Payroll and Third Party Payers
Outsourcing Payroll Duties
EFTPS: The Electronic Federal Tax Payment System
Publication 966 - The Secure Way to Pay Your Federal Taxes for Businesses and Individuals

Maximize your Retirement Savings in 2012

Does your employer’s retirement plan allow you to make contributions from your salary? If so, you are likely being asked to complete a salary deferral form (salary reduction agreement) now to indicate the amount you want to contribute to the plan from your salary in 2012.

To maximize your retirement savings, contribute up to the 2012 allowed limits. The 2012 limits are:

1. $17,000 to 401(k) or 403(b) plans
2. $11,500 to SIMPLE plans

If

1. $5,500 to 401(k) or 403(b) plans
2. $2,500 to SIMPLE plans

　

Remember, in addition to saving more for your retirement, there are other benefits in making salary deferral contributions to a plan. For example:

1. you may reduce your taxable income by making pre-tax contributions;
2. your employer may match your contributions to the plan (
3. you may qualify for the retirement savings contribution credit of up to $1,000 (up to $2,000 if filing jointly) for contributing to the plan, which may reduce your federal income tax liability.

　

If you decide to contribute less than the maximum allowed amount from your salary at this time, you may be able to increase your contributions by completing a new salary deferral form during 2012.

Contact your employer for details about the retirement plan, including how much you can contribute from your salary, whether the employer also makes contributions on your behalf and whether you can change the amount of your contributions to the plan in 2012.

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you are 50 or older by the end of 2012, your plan may allow you to make additional (catch-up) contributions of: for instance, your employer may contribute 50 cents for each dollar that you contribute to the plan, up to a certain amount); and

NOTE TO EDITOR:

1. Tax Information for Plan Participant/Employee
2. Types of Plans
3. Retirement Plan FAQs: Contributions
4. Publication 4703
, – resources and information on life events that can affect retirement savings and definitions.

Below are links to helpful retirement information on IRS.gov. – information about common types of retirement plans. – information about retirement plan contributions. Retirement Savings Contributions Credit – details about the

Year- End Reminders for IRA Owners

Here are a few reminders about individual retirement arrangements (IRAs) that may be useful to know before the end of 2011.

Contribution Limits

If you have not retired, you may want to review the 2011 IRA contribution and deduction limits to ensure you are taking full advantage of the opportunity to save for your retirement. Remember, you can make 2011 IRA contributions until April 17, 2012.

Excess Contributions

If you have exceeded the 2011 IRA contribution limit, you may withdraw excess contributions from your account by the due date of your tax return (including extensions). Otherwise, you must pay a six percent tax each year on the excess amounts left in your account.

Required Minimum Distributions

If you are 70½ or older this year, you must take a 2011 Required Minimum Distribution (RMD) from your traditional IRA by December 31, 2011 (April 1, 2012, if you turned 70½ in 2011). You can calculate the amount of your RMD by using the RMD worksheets. You must calculate the RMD separately for each traditional IRA that you own, but can withdraw the total amount from one or more of the traditional IRAs. Remember that you face a fifty percent excise tax on any amount of a RMD that you fail to take on time. If you own only Roth IRAs, you don’t have to worry about RMDs because you are not required to take RMDs from Roth IRAs.

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NOTE TO EDITOR:

1. IRA Resources
2. Frequently asked Questions: IRAs
3. Frequently asked Questions: Required Minimum Distributions
4. Publication 590
, – explain various RMD rules and requirements. – explain various IRA rules and requirements. – information for IRA owners including contribution and deduction limits, required minimum distribution worksheets, types of distributions, rollovers and more.

Below are helpful resources on retirement topics found on IRS.gov. Individual Retirement Arrangements (IRAs) – explains different types of IRAs, tax on IRA distributions and more.