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Tuesday April 23, 2024Washington NewsMaximum Benefit From Home Energy Credits
On May 4, 2023, the Internal Revenue Service (IRS) published a letter to encourage taxpayers to maximize their benefits from energy efficient home updates. The expanded benefits were authorized by the Inflation Reduction Act of 2022.
Most of the new benefits are under the Energy Efficient Home Improvement Credit (EEHIC) or the Residential Clean Energy Credit (RCEC). Homeowners or renters may benefit from these credits if qualified improvements are made to the residence. Landlords are not qualified to claim the credit. The specific qualifications are explained at IRS.gov/HomeEnergy. 1. Energy Efficient Home Improvement Credit The EEHIC may produce up to $3,200 in benefits per year. It became effective on January 1, 2023 and is scheduled to last for the next decade. The credit is 30% of qualified energy efficiency improvements, up to $1,200 for home improvements, with certain limits that may include $250 per door ($500 total), a total of $600 for efficient windows and $150 for a qualified home energy audit. There is an enhanced credit of up to $2,000 for qualified heat pumps, biomass stoves or biomass boilers. 2. Residential Clean Energy Credit The RCEC is intended to encourage energy production improvements in a main home. These could include solar photovoltaic panels, solar water heaters, a wind turbine, a geothermal heat pump or battery storage technology. The solar water heater must be certified by the Solar Rating Certification Corporation. A geothermal heat pump must meet the Energy Star requirements. A storage battery must have capacity of three kilowatt hours or more. There is no annual or a lifetime dollar limit on these energy production improvements. The tax credit is scheduled to be 30% each year until 2033. Both credits are nonrefundable, which means that the credit amount will not be refunded if it exceeds the tax payable. While the EEHIC may not be carried forward, the RCEC may be carried forward and applied to reduce taxes in future years. IRS Highlights Benefits of Starting a BusinessThe week of April 30, 2023 was National Small Business Week. The Internal Revenue Service (IRS) has published multiple resources to assist individuals who are interested in starting a business. The IRS noted, "National Small Business Week is an annual effort led by the Small Business Administration to recognize the hard work, ingenuity and dedication of America's small businesses and to celebrate their contributions to the economy." To celebrate the important week for small businesses, the IRS highlighted the many resources available to individuals who choose to start a business. Some of the tips and resources offered by the IRS include:
Senators Warn IRS About AI Tax ScamsOn May 1, 2023, Senators Margaret Wood Hassan (D-NH), Charles Grassley (R-IA), Ron Wyden (D-OR) and James Lankford (R-OK) sent a letter to IRS Commissioner Daniel Werfel. The Senators were concerned that cybercriminals will harness artificial intelligence (AI) tools to generate new and effective tax scams. American taxpayers may be even more vulnerable to the new tax scams created with AI tools such as OpenAI's ChatGPT. Previous tax scams have frequently been easy to identify because they included spelling mistakes, grammatical errors or improper tax references. However, the tax scams produced by current AI technology have a much higher quality and the increased professionalism of the scams may "trick vulnerable taxpayers." This new capability of tax fraudsters using AI may increase the vulnerability of families, older Americans and small businesses. Cybersecurity experts have recently demonstrated ChatGPT's ability to generate high quality scam messages. One scam involved a fake email claiming to be from the IRS. The fake email stated that if an individual wanted to receive a tax refund of $1,450, he or she was required to produce personal financial information. Another scam involved the use of ChatGPT to create a transcript for a scammer claiming to be an IRS agent. The transcript helped the scammer be more effective in targeting the victim. Finally, a third strategy was a scam generated by ChatGPT that targeted a business owner under the inducement of claiming the Employee Retention Tax Credit. The scam encouraged the business owner to provide the Employer Identification Number (EIN), his or her payroll information and a list of employee Social Security Numbers. The Senators requested answers to four questions by May 31, 2023.
Applicable Federal Rate of 4.4% for May -- Rev. Rul. 2023-9; 2023-19 IRB 1 (15 April 2023)The IRS has announced the Applicable Federal Rate (AFR) for May of 2023. The AFR under Sec. 7520 for the month of May is 4.4%. The rates for April of 5.0% or March of 4.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2023, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return. Published May 5, 2023
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