Michigan Tax News

Grand Rapids Business Journal & Culver CPA Group

Sun, 11 Mar 2012 04:26:00 GMT

As many of you know, Culver CPA Group has undergone some exciting changes in the past 6 months. Our new name, new logo, and overall new look have helped us create a brand that more accurately reflects our business. You can still expect the same great service and financial advice that you've come to know for the last 30+ years, along with a dedicated and experienced staff who has your best interests in mind.

In addition to taking care of our clients, we also take great pride in enhancing the community in which we live and work. This shows through the time and effort we've spent building and growing the Creston Business District.

We recently had the opportunity to sit down with Alissa Lane, of the Grand Rapids Business Journal, to discuss where we've been, where we're going, and the positive steps we're taking to get there. Read the article in its entirety here.

2011 US Tax Changes

Wed, 01 Feb 2012 01:22:00 GMT

It has become convenient for Congress to pass temporary tax laws which apply for one, two or maybe five years, then, the old rules apply again. There were many of these provisions set to expire in 2010, some of which Congress extended for two more years. These extensions included the lower long-term capital gains and qualified dividends tax rates of 0% and 15%, now set to increase to 10% and 20% in 2013. Also, some of the energy tax credits which expired have been revised and extended under rules similar to those we saw three and four years ago. (Not as generous as the rules we had for the last two years.) The website www.energystar.gov offers excellent information on the revised energy credits and eligibility requirements.

New provisions in the law include increased business depreciation to 100% in the first year for many new assets purchased in 2011 and 50% for many new assets purchased in 2012. For individuals, you may already be aware of the 2% discount for employees’ and self-employed individuals’ Social Security Taxes for 2011. Although this is set to expire on January 1, 2012, an extension of this benefit into 2012 is being discussed currently by President Obama and the House and Senate.

Michigan Tax Changes effective for 2012

Wed, 01 Feb 2012 01:33:00 GMT

Michigan has made very significant changes in 2011, effective for 2012 and later years. These changes are affecting many of us, and there are a few opportunities most of us should consider using in December 2011 as these will expire January 1st, 2012. We have written before about Michigan’s 50% tax credit for the first $200 ($400 for married filing joint) donated to each of three categories of charities. This means you could receive up to a $100 ($200 for married filing joint) discount on your Michigan income tax bill for each of the three categories. (Total potential tax savings is $600 for a married couple filing joint.) If you would like to take advantage of them, this is the last year you may do so. Here are the categories of charities for which contributions are eligible for this credit.

Public Contributions (includes Michigan college and universities, Michigan public broadcasting, and public libraries)
Homeless Shelter / Food Bank (primary purpose must be to provide overnight accommodation, food or meals to indigent persons)
Community Foundations (must be a certified community foundation listed with the State of Michigan)

If you are interested in donating to charities that may qualify in these categories, we may be able to help you determine where and how to take advantage of these credits. Please feel free to give us a call to discuss this.

Another big change is with how pensions are taxed for Michigan residents. Many of you have already called our office with questions about how this will apply to you. Here is a summary based on what year you were born:

If you were born before 1946, the rules remain generally unchanged. Your Social Security, pensions, and IRA distributions will continue to be largely exempt from tax as they have been. (Public pensions and Social Security is exempt, and generally the first $45,120 of private pension money is exempt ($90,240 for joint filers).
If you were born in 1946 through 1952, Social Security continues to be exempt, but both public and private are taxable unless your total household resources are less than $75,000 ($150,000 for joint filers). For taxpayers with resources below these thresholds, a $20,000 exemption ($40,000 for joint filers) is allowed against their pension income until they reach age 67. Beginning at age 67, the exemption is reduced by the amount of exempt Social Security or other tax free income.
If you were born after 1952, Social Security continues to be exempt, but public and private pensions are taxed unless your total household resources are less than $75,000 ($150,000 for joint filers), and you have reached age 67. Beginning at age 67, taxpayers with resources below the income thresholds receive a $20,000 exemption ($40,000 for joint filers) reduced by the amount of Social Security or tax free income.

NOTICE: The income thresholds in the above rules have been ruled unconstitutional. We don’t know exactly how these rules will be modified at the time this went to press. We will be updating this information as it becomes available.

Do I need a professional tax preparer? How should I go about choosing one?

Wed, 01 Feb 2012 01:33:00 GMT

Tax professionals are not all created equal. They come with dramatic differences in their knowledge and experience, in their desk-side manner, and especially in their aggressiveness.

Why does aggressiveness matter? You need someone aggressive enough to press you for additional information that’s important to your return, to walk you though the benefits of different tax- saving strategies, and to be firm if you have a mistaken idea about a deduction you want to take. What you don’t need is someone who is aggressive in recommending deductions or strategies which the IRS may or may not agree are legitimate for your circumstances.

I have a client which I helped with an IRS audit several years ago. This client used a preparer for years to prepare their returns for their home-based business. Unknown to the client, probably a dozen business deductions in their return were not legitimate. Because the client had little knowledge regarding taxes they paid this preparer to do their return. The client came to visit me because they were being audited for three years and owed over $10,000 in back taxes. I was able to help them find deductions they were allowed to claim, which were not claimed on their original return, but

unfortunately, there were not enough to overcome what was wrongly claimed on their original return. Although this client is extremely grateful for the help I was in lowering the amount they had to pay, they should not have had to go through this whole audit process because they paid somebody to do their return who should have been competent.

I’d like to explain the major levels of competence among tax professionals, describe some indicators that would suggest what level of competence you need, and conclude with a word about computer programs plus some real-life examples to illustrate those points.

Attorneys and Certified Public Accountants (CPA) generally are recognized as having the greatest expertise in understanding taxes. Both the fields of law and accounting are broad and professionals often specialize in specific areas of practice. Even within the area of taxation there are many specialties. For example, attorneys may earn an LLM (Master of Laws degree) in taxation or an accountant may earn an MST (Master of the Science of Taxation), to establish the necessary background for a specialization in taxation. These additional credentials demonstrate advanced training and education in taxation, but are not necessary for someone to be a tax expert.

Enrolled Agents (EA) are professionals who usually are not attorneys or CPA’s but who have demonstrated their proficiency in tax law by passing an extensive exam administered by the IRS or by fulfilling experience requirements working for the IRS. The EA designation does not mean they are agents for the IRS, but rather that they can represent you before the IRS similar to the way an attorney or CPA can. I have found most enrolled agents to do high quality work and to be very knowledgeable in many areas of taxation.

Many national chains need to recruit and train hundreds of new preparers each year. They offer extensive training in the fall of the year, and hire as many of the trainees as they need to prepare taxes in the winter. This enables the company to process thousands of tax returns, but many of the preparers are very inexperienced and are not good sources for tax advice. The complex tax laws take years of study to master, as is evidenced the ability for attorneys and CPA’s to specialize as extensively as they do.

Attorneys, CPAs and EAs all have annual continuing education requirements. Additionally, they must follow ethical standards of their professions in addition to the ethical standards the IRS has established for practitioners. They can lose their certification if they don’t follow these ethical standards, and most do follow them religiously.

In my practice we review the tax returns to ensure the accuracy and completeness of our work. This practice is missing in many of the tax preparation organizations, and our experience in reviewing old returns new customers bring us, shows this is sorely needed. I am sure many of the new preparers are not even aware of their ignorance.

WHAT TO ASK WHEN LOOKING FOR A TAX PREPARER

Do you have other clients in my line of business?
How many years of experience do you have?
Does somebody else review your work?
Are you going to be here this summer to answer my questions?
How much does it cost to have you answer a letter I get from the IRS?

There are a lot of ads for computer software which you can use to prepare your own return. Computer software in general has come a long way in ease of use and we see record numbers of people finding new uses for software. My understanding is the tax preparation software interviews you. It asks you questions and you answer the questions. As you go through this process, it completes your forms. Sounds simple enough, but our experience is that most of our customers need help understanding some of the questions we ask. Misunderstanding the questions often leads to errors on the returns. How do you know if your software has done your return accurately? After it has prepared your return, will it also answer the letters from the IRS and represent you when you are audited? Will it answer your questions this summer when you want to do some tax planning?

Everybody’s personal lives are different, as are their financial arrangements. Because of this, everybody’s needs are different when analyzing their need for a tax preparation service. Some have very simple situations with only a W-2 form. Others have families, homes, and multiple jobs. Those who own their own business or have rental properties have increased the complexity again. You will want to select a preparer that has the qualifications to deal with the situation you have.

Everyone who wants to succeed financially should be willing to pay for good financial advice. I often have people ask me, as their tax advisor,

what I would recommend concerning a decision they are making. I often back them up to tell them that although taxes will be a component of the decision, not to let that drive the decision. Their decision needs to be based on what makes the most financial sense, taking the tax impact into account, not based on what saves them the most taxes. (Read that last sentence again.) A good advisor can help people make that determination. Be Aware – the best is seldom the cheapest.

An example of some of my clients whom I have been able to help save significant money includes some individuals with moderately low incomes who have qualified for the “Saver’s Credit”. I have had clients for whom I have recommended they open an IRA and save 70% of their contribution off of their taxes. Any tax preparer should be able to figure it out, but are they experienced and knowledgeable enough to be able to look for and identify those opportunities?

I have different people come in every year who have tried doing their taxes on their own using one of the computer software programs. These people come to see me because they know enough about their tax return to know that it didn’t come out the way it was supposed to, and they want me to do it correctly for them. I often wonder how many people are missing deductions, or facing audits because they took too many deductions because they did it themselves and don’t know enough about taxes to know how to get them done right.

Finally, when making your selection for a tax preparer that fits your needs, it is not necessary that you be friends with your tax preparer, but it should be someone you can respect and trust.

Have Too Much Income to Convert to a ROTH IRA?

Wed, 01 Feb 2012 01:34:00 GMT

If you are frustrated because your income has disallowed you from converting your Traditional IRA to a Roth IRA, there is a special opportunity for you in 2010. We recommend you take advantage of this as early as possible in 2010 if converting to a Roth IRA is part of your retirement income strategy. Waiting until the end of the year may cost more in taxes than an early conversion.

Why convert retirement accounts to Roth accounts? What is the big deal anyway? The big deal is how they are taxed – or not taxed. First let's review how traditional retirement accounts work. Usually, when you contribute money to an individual retirement account (IRA)or an employer sponsored account such as a 401(k) or a 403(b), the amount of money you contribute to the account reduces the amount of income you report on your tax return and pay taxes on. This is an incentive to invest money into these accounts. These accounts also have several special features. Generally they are protected from creditors and bankruptcy courts. In addition, the money earned in these accounts is usually not taxed -until it is time to take the money out of the account. Another important feature is that the money cannot be taken out of the account without a penalty until you reach nearly 60 years of age (59½). Although there are exceptions to this rule, the purpose of these accounts is to help people save money for retirement.

In theory, these accounts are designed to encourage you to save money toward retirement when you are earning the most (and paying taxes at the highest rates). Traditional IRAs generally provide a deduction from your income and reduce your taxes while you are in the higher tax brackets. Later during your retirement you pay taxes on these savings in the IRA as you take distributions from the account. It is presumed you will be in a lower tax bracket than when you saved the money, so you will be paying less tax overall.

There are two factors which complicate this theory. First, we don't really know what our future tax rates will be, so we don't know if we will be in a lower bracket in retirement than we are in right now. The other factor is that it is not just the money you put into the account that you pay taxes on when you make withdrawals. You will pay taxes on both the amount you put into the account, and the investment earnings the account has accumulated over the years. All of us hope that this is a substantial amount of money. Another factor with these accounts is that if you don't need to take the money out of the account to live on, you may only leave it in the account until age 70½ , at which point you are required to take out distributions based on your age and life expectancy tables. Ultimately, because of these required distributions and unknown tax rates, maybe the tax you pay won't be less over all.

How is the Roth account different? The Roth IRA is different because you don't get a tax deduction when you contribute money to the account. It is also different because you generally don't pay taxes on what you take out of the account, if you wait until you are at least 59½ years of age. This means that all of the investment earnings are not taxed at all. This is a great opportunity, especially if you are thinking that tax rates will be increasing in the future to pay for the government's addiction to spending, and a future shrinking of the work force.

There are other advantages to a Roth IRA. The biggest one may be greater flexibility in making withdrawals. The people with the most to gain from a Roth IRA are probably young people with many years to allow their investments to grow before retirement. This is often the group of people that is also trying to reach other goals such as purchasing a home or eventually, paying for their children's education. Although other retirement accounts allow limited withdrawals for these and various other reasons without penalties before age 59½, the Roth IRA allows you to withdraw the amount you contributed without a penalty. In addition, you can withdraw rollover contributions without a penalty once the rollover is 5 years old. This is an important safety net for young families. (Remember, these withdrawals are not taxed either – no tax and no penalty.)

Another advantage of the Roth IRA is you are never required to take money out of the account, no matter what your age. This creates a tool which can be used to pass assets down to your heirs, providing them with a tax-free source of income.

Roth IRAs have been limited ever since Congress introduced them. An income limit of $100,000 has been a part of the definition of who was eligible to roll funds from a traditional IRA to a Roth IRA. This has kept people with an income level above $100,000, and those married who file separate, from being able to use this tool. Beginning in 2010, the income limits are removed, allowing anybody to convert their IRA to a Roth IRA.

In addition to traditional IRAs, a SEP-IRA and a SIMPLE IRA can be converted to a Roth IRA. But please be aware that with a SIMPLE IRA, there is a two-year period of minimum participation you must meet before you make the conversion. Conversions can be made by rolling over a distribution from a traditional IRA within 60 days of the distribution, by having the trustee of the traditional IRA transfer an amount to the trustee of the Roth IRA, or by having the trustee of the traditional IRA transfer an amount to a Roth IRA.

When you convert a retirement account to a Roth IRA, you include the value of the account(or portion of the account) converted in your income when you file your tax return, and pay taxes on that income. For many people, this would create a large tax bill, and the money to pay the tax cannot be taken out of the IRA without a penalty unless you are 59½ years of age or meet one of the other penalty exceptions. (Remember, the five year aging rules mentioned above.)

For 2010 only there is a special incentive. Conversions of Traditional IRAs to Roth IRAs in 2010 are not taxed in 2010. Instead, half of the converted value is included in income and taxed in 2011, and the other half in 2012. This provides more time to prepare for the tax bill that will come. It also may lower the amount of tax paid because you are climbing the tax brackets twice.

If you decide that you are going to make this conversion, we recommend you make the conversion in January of 2010, instead of waiting until December. If you don't make the conversion in January, we recommend you make it happen as early in the year as possible. The goal is to reduce the amount of tax you have to pay by making the conversion when the value of the account is at its lowest level. All of us hope and anticipate our accounts will increase in value as the year progresses, but that doesn't always hold true. We suggest that you make the conversion in January, when, we hope, the value of the account is at its lowest point. This will create tax, but less tax than later if the account has grown in value. If the value of the account drops and does not recover by the end of the year, you can change your mind and 're-characterize' the account back into a regular IRA. This will cause the first conversion to no longer be taxable. Once you have made this re-characterization, you must wait until the next tax year (but not less than 30 days) to convert that account to a Roth IRA again. This strategy takes the risk of early conversion and a subsequent drop in the value of the accounts out of the picture.

We want to suggest an advanced strategy using this re-characterization tool to help you make your conversions to a Roth IRA as tax efficient as possible. Let's assume you decide to convert your IRA account of $200,000 to an Roth IRA over a period of 5 years, including approximately $40,000 of income each year, rather than $200,000 all in one year. (You might be trying to use the tax brackets over several years to reduce your tax from the higher amount it would be if all the income was recognized in one year.) Let's also assume you have diversified your investments so you have five different types of stock, mutual funds or other investments each worth approximately $40,000. You realize that by waiting to convert some of the funds until another year means the value of the investment will likely grow, which means you will have to include more money in your income in future years – creating additional tax. You would like to convert the portion of your portfolio that will increase the most the first year, then the portion that will grow 2^ndmost, the second year, and so forth in order to minimize the future tax cost of the delay in your conversions. Since it is impossible to know in advance which accounts will grow the most each year, use the re-characterization tool to review the year. You can do this by converting the IRA to five separate Roth IRAs, converting the entire $200,000. At the end of the year, review the performance of each account, and re-characterize the four accounts that did not have the highest performance. After a 30 day wait and as long as you are in the new tax year, you can re-convert the four IRAs back to Roth IRAs to start the process for year 2.

The decision to make this conversion involves evaluating several complex issues, calculations, and assumptions about uncertain future economic conditions. Your financial/ investment adviser and your tax adviser at Culver, Wood & Culver CPAs can work together to organize the information you need to make a decision about whether or not you should convert your IRAs and which strategy will work best for you. Please call to schedule time to plan this piece of your financial future.

2010 Year-End Tax Update

Wed, 01 Feb 2012 01:34:00 GMT

They Finally Did It! - Last Thursday Congress finally acted to address many tax issues we have been waiting for them to ‘fix’. Although this will help us answer your questions about what tax rates we expect for 2011 and 2012, as well as whether they were going to extend some temporary provisions that expired and were not available for 2010, we really cannot get too excited. We don’t see any of these changes that last more than two years. This means we are less than two years away from another year of uncertainty regarding tax rates.

Did you get our e-mail newsletter with this information? We sent an e-mail newsletter to customers for whom we have e-mail addresses. If you didn’t get one and would like to be included in these informative notices, please e-mail Bridgot in our office at bbyrum@cwccpas.com.

What this means for you We now know that the Bush era tax cuts have been extended for two years. Here are some planning ideas for you to consider during this window of time:

Convert your traditional IRA into a Roth IRA. Although this creates additional taxes, you have the choice to either (1) pay the tax on the conversion when you file your 2010 return (April 15, 2011), or (2) pay half the tax on the conversion when you file your 2011 return (April 15, 2012), and the other half when you file your 2012 return (April 15, 2013). Since we know the tax rates are not increasing for 2011 and 2012, this is worth evaluating. New for 2010, is the income limits have been removed so that people at all income levels are eligible to make these conversions. We have more information on this in an article on our website: CWCcpas.com.
For those over age 70½, you may contribute money from your IRA to a charity – and not report the distribution as income. Subject to a limitation of $100,000, you may make your charitable contributions through your IRA which could save you money in both federal and state taxes depending upon your situation. You have been given until January 31, 2011 to make 2010 contributions through your IRA.
Long-Term Capital Gain rates now extended at the low rates of 0% and 15% through 2012. You can use this opportunity to sell appreciated property at lower tax rates. If you are holding stocks, you may want to sell some of them to recognize gains at these low rates, even if you repurchase those stocks to maintain your investment. If you sell property over a period of time where you are collecting installment payments, you may want to consider paying taxes on your gain in the year of sale, rather than waiting until the tax rates have increased.
2% tax holiday is a good time to boost your retirement contributions. Part of the tax changes passed in December 2010 is a reduction of employee FICA taxes from 6.2 % to 4.2% of earnings for 2011. This savings is also incorporated into the rate a self-employed person will pay. Beginning with your first paycheck in 2011, you should see this adjustment. We recommend you consider boosting your retirement contributions by this same 2% for 2011.

Other Changes we have seen this year you may need to know about:

Adoption Credit increased to $13,170 and made refundable. For an adoption of a child with special needs, a $13,170 credit is allowed regardless of actual expenses. The credit allowable for a tax year is phased out for higher-income taxpayers. What is new for 2010 and 2011 is that this credit is refundable. In addition, carryover credits from prior years will be refundable for 2010! (For 2011, the expenses allowed for the credit are increased to $13,360.)
Alternative Minimum Tax (AMT) patched. (Again.) We have been watching this closely for many years now. You are liable to pay the HIGHER of the tax calculated using the system we commonly work with, or the AMT. The AMT does affect over 4 million taxpayers, and would affect six or seven times as many people for 2010 and future years if Congress did not “patch” the law again. They did increase the exemption amount for 2010 and 2011, giving us some reprieve. Now we have another year before we worry about the next ‘patch’ they need to make!
Child Tax Credits have been continued at the $1,000 level (was supposed to decrease to $500) for 2011 and 2012. In addition, they will continue to be refundable credits. This is good news for most families with children age 16 and under.
College Tuition Credits in the form of the American Opportunity Tax Credit has been extended for 2011 and 2012. This credit generally allows for $2000 credit for the first $2,000 of college tuition expenses and $500 for the next $2,000 of college tuition for any of the first four years of college. For more information on this credit, view the article on our website at CWCcpas.com.
Mileage rates for 2010 and 2011. Business use of a vehicle is deductible against business income. The IRS allow us to use a prorated share of actual expenses, or we may use a standard rate of 50 cents per mile for 2010. For 2011, the rate will increase to 51 cents per mile. In addition, use of your vehicle to obtain medical care is deductible as a medical expense at the per mile rate of 16.5 cents for 2010 and 19 cents for 2011. Use of your vehicle for charitable purposes is deductible at the rate of 14 cents.
Self-Employed Health Insurance is deductible from Self-Employment tax for 2010 only. Usually it is deducible for income tax purposes, but not for Self-Employment taxes. In 2010 it is deductible for both.
- Small employer health insurance credit. Beginning in 2010, an eligible small employer (ESE) may claim a tax credit for non-elective contributions to purchase health insurance for its employees. An ESE is an employer with no more than 25 full-time equivalent employees (FTEs) employed during its tax year, and whose employees have annual full-time equivalent wages that average no more than $50,000. However, the full credit is available only to an employer with 10
- or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of not more than $25,000.
Landlords must issue 1099s for services over $600, like any other business. This is a heads-up for 2011 and later years. Any rental expense for services that are over $600 per year for a single payee must be reported on a 1099 unless the payee is a corporation or an exempt organization. We recommend that you have the payee complete a W-9 before you pay them!
Businesses must issue 1099s for all payments after 2011. This is a one-year warning for what is coming. Businesses and Landlords must begin issuing 1099s for all business expenses, (not just services), that are over $600 to a single payee for all payments after 2011. Corporations are no longer exempted, and this includes purchases of property (merchandise, supplies, autos, equipment, etc.), not just payments for services. Many businesses need to start preparing by collecting W-9 forms for their vendors during 2011 so they are prepared for 2012. You may also want to consider supplying your Employer Identification Number (EIN) on your invoices or supplying a W-9 to each of your business customers early in 2012.
Expensing Limits for business purchases expanded. Businesses can generally deduct most of their qualifying equipment purchases for 2010 and 2011 either through Section 179 deductions which allow them to expense up to $500,000 of purchases for 2010 and 2011, or through new ‘bonus depreciation’ for purchases from September 9, 2010 to December 31, 2011.
State Unemployment Debts now collectable by IRS. People who owe Michigan or other states back unemployment may find that the IRS will help the states collect this money through federal tax refunds. December’s law change authorizes IRS to offset refunds to collect these funds on behalf of the states. If you file a joint return with a spouse who is liable for these payments, you may have to file a Form 8379, Injured Spouse Allocation in order to receive your portion of your tax refund.
Estate Tax Changes. Congress, after years of anticipation, has finally addressed many uncertainties about the estate tax laws which were set to expire completely for the one year, 2010, then be reinstated on all decedent estates of over $1 million. They changed the exemption to $5 million, for years after 2010, the gift tax exemption is unified with the estate tax at the $5 million level also. In addition, for 2010, 2011, and 2012, they have lowered the top estate tax rate from 55% to 35%. There continues to be a lot of uncertainty in the future tax rates in this area and we recommend most people work with a qualified estate planning attorney to plan how they want their legacy and estate handled. Give us a call for attorneys we recommend.

This is only a sampling of the many changes we have seen from five significant tax laws passed in 2010. None of us have seen as many changes in the tax laws in a single year as we are dealing with this year. We will continue to prepare updates on specific topics and e-mail them to you. If you are not getting these notices and would like them, please e-mail bbyrum@cwccpas.com and request to be included.

Thank you for your business and your referrals. We hope you have a Merry Christmas and a Blessed New Year in 2011. Sincerely yours, The entire staff at Culver, Wood & Culver, CPAs

30 precent off energy saving home improvements

Wed, 01 Feb 2012 01:34:00 GMT

As the seasons change, our home energy needs change as well. Often we think about projects we want to accomplish before the snow flies, when it isn’t raining, and when it’s not too hot. Although the weather never seems to be just right, now the weather of ‘tax policy’ is sunny and beautiful for making many types of home improvements.

You may have used the 10% tax credit up to $500 ($200 for windows) offered in 2006 and 2007 for qualified energy saving improvements to your home. Congress has renewed and expanded this credit providing a real incentive to make some energy saving improvements in 2009 and 2010. As the commercials on TV state, the credit has been expanded to 30% of the cost of these improvements up to $1,500. Now some of the projects you put off before are worth getting finished before the end of 2010. Let’s look at some of the specifics:

There are up to $1,500 in combined total credits available for improvements to your principle residence (not a vacation home or rental house) if certain energy efficiency standards are met. The improvements must be to the ‘building envelope’ (outside openings, walls & roof) or for residential energy property (furnace, hot water heater, air-conditioner, etc.).

The credit is 30% of the amount spent on energy-saving products, but limited to $1,500. The credit is ‘nonrefundable’ which means it will reduce your taxes, but not below zero. However, if you cannot use all of the credit in the first year, you may qualify to carry forward a portion of this credit into the next tax year.

For improvements to the building envelope, only materials are covered by the credit, not the cost of assembly or installation. You are not required to have these installed by a contractor, so if you have the skills, you may save money by installing the materials yourself. This includes insulation, exterior caulking, weather stripping, and installation of doors and windows.

For energy property, such as furnaces and hot water heaters, installation costs can be included when evaluating the credit.

Since the improvements must meet certain energy standards, be sure that you receive and retain a certificate from the manufacturer stating that the products meet the requirements to claim the credit.

If you live in Michigan and meet the income requirements ($ 37,500 or less in income for a single person and $ 75,000 or less in income for a married couple), you may qualify for an additional state income tax credit for 10% of the installed cost of certain energy saving products or improvements. For specific information, see our website.

As you can see, the tax incentive for making these improvements is significantly greater in 2009-2010 than it was in 2006-2007. This credit, combined with the new Michigan energy credit and savings in heating and cooling costs, means that you “break even” on your investment sooner.

Does going green make financial sense for you? Let us help you answer that question. Give us a call at 616-456-6464, Monday through Friday 8:00am – 5:00pm. We will be happy to help you.