Better Tax Credits and Shrewd Planning Moves Are Crucial Opportunities This October
The end of 2002 is, somehow, already nearly here. That means it’s tax planning time. You could do much worse than to begin meticulously looking for opportunities to cut your 2022 taxes. Fortunately, in our October newsletter, we make that easy.
Read on below. You’ll learn about several clever measures you can take, and thank yourself for next April.
October 17, 2022
Filing deadline for extended 2021 individual and C corporation tax returns
October 31, 2022
In This Issue
- Still Time to Reduce Any Tax Surprises!
- New and Improved Energy Tax Credits for Homeowners
- Maximize Your College Financial Aid With These FAFSA Tips
- Planning for Future Care: A Financial Dilemma
- Moskowitz LLP Resources for You
Still Time to Reduce Any Tax Surprises!
They’re statistically some of the least fun surprises out there.
Consider conducting a final tax planning review now to see if you can still take actions to minimize your taxes this year. Your goal right now is to try and avoid any unwanted surprises when you file your tax return. It’s also better to identify the need for a review now versus at the end of the year when time is running out. And remember, you are not required to be a tax expert. Use the tips here to determine if a review of your situation is warranted.
At Moskowitz LLP, we look at each client’s tax and financial picture both in detail and through a wide-angle lens. Our accountants and attorneys are here to advise and support you. They’ll show you how your tax picture has changed over time, and help you make informed choices for the future. Whether you’re looking for ways to reduce your tax obligation, incorporating under a new status, or managing the assets of an estate, we’re here to help. Take a look at our recent blog post detailing the tax planning services we are proud to provide.
New and Improved Energy Tax Credits for Homeowners
The president signed the Inflation Reduction Act into law on August 16, 2022. It contains some valuable tax credits for homeowners.
When it comes to taxes, nothing is better than a tax credit since it is a dollar-for-dollar reduction in the taxes you must pay (unlike a tax deduction that only reduces your taxable income). In other words, a $1,000 credit saves you $1,000 in taxes. The new law extends and expands three tax credits intended to encourage homeowners to make their homes more energy efficient and to facilitate the use of electric vehicles.
Energy Efficient Home Improvement Credit
The new law creates the 2023 Energy Efficient Home Improvement Credit that helps homeowners pay for various types of energy efficiency improvements, including:
- exterior windows skylights, and doors;
- home insulation;
- heat pumps, water heaters, central air conditioners, furnaces, and hot water boilers;
- biomass stoves and boilers; and
- electric panel upgrades.
The old credit contained a tiny $500 lifetime cap. Lifetime caps are gone beginning in 2023.
Instead, the new law gives you a $1,200 annual cap along with specific caps on some improvements. But overall, you can perform many energy efficiency projects over several years and collect a credit each year.
Residential Clean Energy Credit
Most taxpayers earn the Residential Clean Energy Credit by installing solar. Two good things here. First, the new law extends the credit through 2034. Second, the new law increases the credit from 26 percent to 30 percent for eligible property placed in service in 2022 through 2032.
There is no annual or lifetime cap on this credit. The average solar project cost on a home is over $20,000, so this credit can save you more than $6,000.
You can also apply this credit to the cost of storage batteries, solar water heaters, geothermal heat pumps, small residential wind turbines, and residential fuel cells.
Home Electric Vehicle Charger Credit
The new law extends through 2032 the tax credit for installing a home electric charger. The amount of credit remains the same: a non-refundable credit equal to 30 percent of the cost of a home charger, capped at $1,000. But starting in 2023, the credit will be available only for homeowners who live in low-income or rural areas.
Maximize Your College Financial Aid With These FAFSA Tips
Because no one ever accused tuition of being too cheap.
A brand new Free Application for Federal Student Aid (FAFSA) made its debut on October 1st, featuring 60% fewer questions and a host of other changes that aim to increase the likelihood that you can qualify for financial aid.
As you prepare to complete this year’s application, here are some tips to maximize your FAFSA eligibility for financial aid:
- File the FAFSA early. More than a dozen states award financial aid on a first-come, first-serve basis. Students who file the FAFSA in October tend to get more than twice as much grant aid on average as students who file the FAFSA later. Even better, by completing the FAFSA early you can time your financial requests to colleges with their varied due dates.
- Minimize income in the base year. 2021 is the base tax year when filling out the FAFSA for the 2023-2024 school year. If you’ve already filed your 2021 tax return, consider filing an amended Form 1040 if there were deductions you may have overlooked that could reduce your income. Otherwise, file this knowledge away to best position your income for future years.
- Reduce the amount of reportable assets. While assets aren’t weighted as heavily as income on the FAFSA, they could still affect overall financial aid eligibility. To decrease the amount of reportable assets, consider using cash in your bank accounts to pay down unsecured debt such as credit cards and auto loans, or maximizing retirement plan contributions. Keep in mind that certain assets aren’t considered when determining financial aid eligibility. This includes the home you live in, the value of life insurance, and most retirement plans.
- Use 529 plans wisely. 529 plan owners will impact how the funds are reported on the FAFSA. If the account owner is a grandparent or relative, the funds are not counted on the FAFSA until the money is used. So timing the use of these funds is important. And remember if the account owner is a parent or the student, the balance of 529 plans is considered an asset of the parent on the FAFSA.
- Spend a student’s money first. If a student does have cash saved or other assets, consider withdrawing money from student assets first before touching parent assets, since student assets are assessed at a higher rate than parent assets.
- Plan for the American Opportunity Tax Credit (AOTC). If your family is eligible for the AOTC, try spending up to $4,000 in tuition and textbook expenses using cash. The AOTC’s maximum tax credit of $4,000 will be worth more dollar-for-dollar rather than using a $4,000 tax-free distribution from a 529 plan.
Planning for Future Care: A Financial Dilemma
Long-term care costs that drain your nest egg is a financial pothole that is hard to avoid. Here are some ideas to help manage this hazard.
How much is needed
Here’s how much money you’ll need for three different types of senior living arrangements according to Genworth’s 2021 Cost of Care Survey:
- In-home care – $4,957 to $5,148 monthly; $59,484 to $61,776 annually
- Community and assisted living – $1,690 to $4,500 monthly; $20,280 to $54,000 annually
- Nursing home facilities – $7,908 to $9,034 monthly; $94,896 to $108,408 annually
The traditional source of payment problems
Too many people unfortunately think that Social Security, Medicare and health insurance will cover the costs of long-term care. While about half of adults age 50 and over believe that Medicare will cover the cost of long-term care services, according to an AARP survey, the reality is that Medicare provides very limited coverage for long-term care.
What you can do
Here are some suggestions for how you can care for yourself and your loved ones when you need it.
- Review long-term care insurance. While it’s hard to find a cost-effective policy, long-term care insurance helps pay for several types of services ranging from in-home care to nursing homes. It can be difficult to qualify for long-term care insurance, however. Policy underwriters require you to answer questions and possibly complete an exam to determine medical eligibility.
Some employers offer long-term care insurance that is purchased at group rates. If your company offers coverage, it may be a better alternative than purchasing a policy on your own.
- Take advantage of tax benefits. Long-term insurance premiums may be tax deducible. Tax-qualified polices are considered a medical expense and the premiums are listed as an itemized deduction. For more information, speak with an insurance agent specializing in long-term care policies as well as your tax professional.
- Research long-term care costs in your state. The cost of long-term care services varies by state, type of services required, and type of services preferred. Knowing the cost of long-term care available in your area is a good starting point in the planning process.
- Leverage life insurance. Certain life insurance policies with an early withdrawal for terminal illness or care needs can be an alternative to long-term care insurance. And if structured properly, it can also have tax-free status when used.
Before taking steps for your care as you age, please talk to qualified experts. While long-term care is costly, so is making the wrong decision on how you are going to fund it.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
Moskowitz LLP Resources for You
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