Tax Breaks for Charitable Giving: Maximize Your Impact and Your Savings
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With many of the most substantial provisions of last year’s Inflation Reduction Act impacting corporations, small businesses, tax-exempt and government entities, and families, individual taxpayers may be wondering where they fit in.
The fact is that this significant piece of legislation has no shortage of implications for individuals, including critical incentives that could help put more money back in your pocket at tax time.
To better understand how the Inflation Reduction Act can benefit individual taxpayers and what’s new in 2023, continue reading below.
Signed into law on August 16, 2022, the Inflation Reduction Act (IRA) is among the most significant pieces of legislation in decades. Tackling a wide range of issues, this landmark bipartisan infrastructure package allocates $500 billion towards new spending and tax incentives to promote clean energy, reduce healthcare expenses, and increase tax revenue.
The IRA further aims to stimulate investments in domestic manufacturing capacity, encourage the procurement of essential supplies both domestically and from free-trade partners, accelerate research and development, and commercialize cutting-edge technologies such as carbon capture and clean hydrogen.
Finally, it also directs funding towards environmental justice priorities and mandates that recipients of various funding streams demonstrate equity impacts. The Congressional Budget Office (CBO) estimates that this law will reduce budget deficits by $237 billion over the next decade.
The act covers new and reinstated tax laws that impact individual taxpayers, including tax credits and rebates related to clean vehicles and home energy.
A rebate and a tax credit are similar in that they both can reduce the amount of money you owe to the government, but they operate differently.
A tax credit reduces the amount of income tax you owe, dollar-for-dollar. For example, if you have a tax liability of $5,000 and you qualify for a $1,000 tax credit, your tax liability reduces to $4,000.
Tax credits can be refundable (you get a refund if it exceeds your tax) or non-refundable (only reduces tax to zero).
A rebate, on the other hand, is a reimbursement or incentive for specific purchases or actions and is typically a corresponding amount of money returned to you by the government or a third party. For example, you might receive a rebate on a car purchase or the installation of energy-efficient appliances.
Unlike a tax credit, a rebate is usually not tied directly to your tax liability and usually comes as a separate payment or discount.
The Inflation Reduction Act is sprawling and complex, and many provisions that technically also apply to individual taxpayers may be more relevant for businesses or corporations.
For example, the Investment Tax Credit (ITC) provides financial incentives to invest in renewable energy technologies. Individuals are eligible for this tax credit, which can help offset the initial costs of developing and installing solar energy systems. However, businesses investing in solar projects may find this tax credit especially useful. (We covered other renewable energy incentives of the IRA that businesses should note previously on this blog.)
However, there are also provisions more directly impactful for individuals. From the Clean Vehicle Tax Credit to home energy credits and rebates, the IRA could affect your taxes.
Credits like the Electric Vehicle Tax Credit are designed to encourage consumers to purchase more environmentally friendly cars, reduce greenhouse gas emissions and the nation’s dependence on fossil fuels, and improve energy security. The Electric Vehicle Tax Credit, for example, can be used to offset any tax liability the purchaser owes, and any remaining credit can be carried over to future tax years.
Taxpayers may also qualify for the new Clean Vehicle Tax Credit. However, recent changes to this tax credit will change the rules for vehicles purchased from this year onwards.
The IRS has just issued a new reminder about recent changes to the Clean Vehicle Credit, to which the IRA introduced major modifications — notably, for example, it expanded the eligibility to include fuel cell vehicles and introduced a credit for previously owned and commercial clean vehicles.
To qualify for the Clean Vehicle Credit, buyers must ensure that the vehicle is manufactured by a qualified manufacturer and must meet specific requirements, such as income limits. Qualified manufacturers must have an approved agreement with the IRS and provide valid Vehicle Identification Numbers (VINs) to match during tax filing.
Buyers should verify that the make and model are eligible when purchasing a new or used clean vehicle.
Tax law changes also introduced a new Clean Vehicle Tax Credit for vehicles purchased from 2023 to 2032. Eligible buyers of qualified plug-in electric vehicles (EVs) or fuel cell vehicles (FCVs) may claim a credit of up to $7,500, provided they use the vehicle primarily in the U.S., do not exceed specific income limits, and buy it for personal use.
The credit amount depends on the vehicle’s delivery date and certain criteria, including battery capacity and mineral and battery component requirements.
We recently discussed the Electric Vehicle Tax Credit in more detail on this blog.
To claim the credit, taxpayers should file Form 8936 along with their tax return, providing the vehicle’s VIN.
Lastly, when you make energy improvements to your home, you may be eligible for tax credits covering a portion of qualifying expenses, the amounts and types of which were expanded under the IRA.
Individuals who make qualifying home improvements can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.
For the Energy Efficient Home Improvement Credit, eligible expenses include items like exterior doors, windows, insulation materials, heating and cooling systems, biomass stoves, and home energy audits.
The credit is a percentage of the total improvement expenses, with a 30% credit rate for 2022 (up to a lifetime maximum of $500) and a 30% credit rate for 2023 through 2032 (up to a maximum of $1,200, with separate limits for biomass stoves and boilers).
For the Residential Clean Energy Credit, qualifying expenses encompass solar, wind, and geothermal power generation, solar water heaters, fuel cells, and battery storage starting in 2023.
The credit rate is 30% for 2022 to 2032, with no annual maximum or lifetime limit. In 2033, it decreases to 26%; in 2034, it further reduces to 22%, with no annual or lifetime limits in these years.
Homeowners improving their primary residence have the most opportunities to claim these credits, but renters and owners of second homes used as residences may also be eligible. The credits are unavailable for improvements made to homes not used as residences.
The IRA also introduces two key provisions for home energy rebates totaling $8.8 billion:
While the U.S. Department of Energy (DOE) will oversee the allocation of these funds, states and Native nations are responsible for designing and implementing their rebate programs — meaning eligibility may vary depending on your area.
Applications to access funds are available for states and territories and are forthcoming for nations. Households can expect to access these rebates in most areas by 2024. In the meantime, if you require urgent energy efficiency upgrades, existing programs like the Weatherization Assistance Program and tax credits may offer assistance.
As mentioned above, the Inflation Reduction Act is expansive and complex. This article is only a broad summary of some of the ways individual taxpayers may benefit from the IRA and new changes in 2023, of which you should be aware.
For expert guidance regarding your unique tax circumstances, it’s always a good idea to consult with experienced professionals…like us!
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Category: Business
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Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.
He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.
His business experience includes:
Creating and preparing financial reporting, budgeting and forecasting.
Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.
Jeff also has a long history of helping individuals manage their taxes and plan their finances including:
Income tax planning and strategy.
Filing quarterly and annual taxes.
Audit support.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.
Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.
Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004. After a career of public accounting and general management, Jody knows the value of good financials. Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.
He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles. His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.
He has a particular expertise in early-stage growth companies. His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.
Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller. He has experience across industries, which gives him a deep understanding of business.
Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.
In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.
He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.