Sales Tax Holiday and Energy Efficient Products

Submitted by Paige Biddlecomb, CPA

From Friday, October 7, 2011 through Monday, October 10, 2011, purchase of certain Energy Star and WaterSense qualified products purchased for non-commercial use and costing $2,500 or less, will be exempt from Virginia sales tax. The exempt Energy Star items include dishwashers, clothes washers, refrigerators, air conditioners, ceiling fans, compact fluorescent light bulbs, dehumidifiers, and programmable thermostats that carry the Energy Star designation. The exempt WaterSense items include bathroom sink faucets, faucet accessories, showerheads, and toilets.

Virginia also launched an Energy Efficiency Rebate Program. Energy efficient improvements include upgrading HVAC, adding insulation, replacing windows, and other improvements to existing homes and businesses to reduce energy consumption and utility costs. Homeowners are eligible for rebates of up to 20% of their costs, up to $4,000. Home and business owners also could qualify for an additional $250 for an energy audit. More information about this program is available at www.dmme.virginia.gov

In addition to the Virginia Sales Tax Holiday and Rebate program, you can qualify for a residential energy tax credit on your 2011 Federal tax return. You can take up to 10% of the cost of the qualifying item and deduct a credit of up to $500. To qualify for the residential energy tax credit, the improvements must be made to your existing principal residence. Certain insulation products, roofs, and doors qualify for up to $500. Windows and skylights credit is capped at $200 and must carry the Energy Star certification. Qualifying furnace and boilers are capped at $150 credit and all must meet 95 AFUE. A $50 maximum credit for certain advanced main air circulating fan, and $300 for qualifying air conditioners, air source heat pumps, water heaters, and bio mass stoves. Save your receipts and the Manufacturers Certification Statement for your records.

If you have taken the residential energy credit of over $500 from 2006-2010 on your Federal tax return, you are not eligible for any additional credit for 2011.

Homeowners who install renewable-energy devices in their principal residence or second home qualify for an even bigger tax break: 30% of the cost with no maximum. Qualifying improvements include geothermal heat pumps, solar-powered water heaters, solar panels, fuel cells, and small wind-energy systems. The qualifying equipment can be installed in new or existing homes. This credit is available through December 31, 2016, although non-refundable; it is unlimited and can be carried forward indefinitely.

You can find more information about the qualifying products at www.energystar.gov or www.epa.gov/watersense

Did you Suffer a Casualty Loss?

When you suffer a sudden, unexpected loss, you may be eligible for a deduction that can reduce your current tax, or in some instances, your prior-year liability.

When your personal property is damaged or destroyed as the result of a storm, earthquake, fire, or other casualty, you might be eligible for an itemized deduction. The personal property can include your home, household items, vehicles, and boats. You may not deduct losses covered by insurance unless you file a timely claim and you must reduce the loss by any amount of reimbursement.

If the property is not completely destroyed, the amount of the loss is the lesser of the adjusted basis of the property or the decrease in fair market value of your property as a result of the casualty.

The loss must be reduced by any salvage value and by any insurance or other reimbursement you receive or expect to receive. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation. You may determine the decrease in fair market value by appraisal, or if certain conditions are met, by the cost of repairing the property.

Individuals are required to claim their casualty losses as an itemized deduction on Form 1040, Schedule A. For property held by you for personal use, once you have subtracted any salvage value and any insurance or other reimbursement, you must subtract $100 from each casualty event that occured during the year. Then add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty losses for the year.

Casualty losses are generally deductible in the year the casualty occurred. However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to treat the loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year. If you loss deduction is more than your income, you may have a net operating loss. You do not have to be in business to have a net operating loss from a casualty.

If you incur a casualty loss, contact your insurance company and tax advisor.

Chesapeake Accounting Group, PC 453-7611

Save for Medical Costs with an HSA

Contributed by Paige Biddlecomb, CPA

With rising Health Insurance costs, you may want to take a look at a high-deductible plan along with a Health Savings Account (HSA). The combination can cut taxes now as you stash away money you can use tax-free for qualifying medical expenses.

To qualify, you must have a deductible of at least $1,200 for individual coverage or $2,400 for family coverage. The policy also must limit out of pocket costs to $5,950 for individuals or $11,900 for families. Once enrolled you can open an HSA and contribute up to $3,050 for individuals or $6,150 for families. You are allowed an additional $1,000 contribution if you are 55 or older. To be eligible, you cannot be enrolled in Medicare and not eligible to be claimed as a dependent on another’s tax return.

The tax advantages of an HSA can be significant; contributions are deductible against income, earnings on the account are tax-exempt, and any unused balances may accumulate without limit.

Contributions to HSAs may be made by an individual, as well as by other individuals on your behalf, including employers as long as the contribution does not exceed the annual limit. Contributions can be made during the calendar year and up until April 15^th for individuals.

Withdrawals from HSAs are tax exempt if used for qualified medical expenses, excluding health insurance.  Qualifying medical expenses include, but are not limited to doctor visits, co-pays, prescription drugs, and lab fees. If funds are not used for qualifying expenses, the distribution is included in income and subject to a 20% penalty.  There is no time limit when HSA funds must be used however the funds may not be used to pay expenses incurred prior to establishing the HSA.

HSA funds may be invested in bank accounts, CDs, stocks, mutual funds, bonds, or annuities. Contact your local bank or financial advisor to determine if they have a Health Savings Account to fit your needs.

Paige Biddlecomb is Vice President of Chesapeake Accounting Group, PC 453-7611

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