Don’t Overlook Valuable Tax Credits This YearFebruary 19, 2020
By: Anthony Delvalle, CPA | Shmuli Fromovitz, CPA
When visiting the IRS website, you will find an interesting page that is dedicated to tax quotes from famous personalities. Included on the list is a famous quote from the ancient Greek philosopher Plato: “Where there is an income tax, the just man will pay more and the unjust less on the same amount of income.” These familiar words are often repeated in today’s political environment, especially in the context of income inequality. However, when looked at through the lens of a tax professional, these words take on additional meaning. As any accountant can tell you, two individuals with identical income amounts may be subject to different tax liabilities based on the tax-saving opportunities that they take advantage of. And most of us would want to be the taxpayer with less tax liability!
One proven way to reduce the tax burden of a taxpayer is to utilize some of the various tax credits available at the federal, state and local levels, which can serve as a dollar-for-dollar reduction of taxes owed. Unfortunately, useful credits can often be overlooked due to the sheer volume of tax credits and incentives available, thereby leading to missed opportunities for taxpayers to lower their tax burdens. Many of the tax credits available are applicable at the entity level while others are taken on the tax return of the individual owners. Additionally, some tax credits may be granted by the federal government, while others are allowed at the state and local levels. In this article, we will highlight three different tax credits that are often overlooked and may be of interest to those in the real estate industry. Note that these credits are only the tip of the iceberg when it comes to what is actually out there, and it behooves tax professionals and taxpayers alike to do their due diligence and see what other credits and tax savings opportunities are readily available to them.
PLUG-IN ELECTRIC DRIVE MOTOR VEHICLE CREDIT – FEDERAL
Enacted with the Energy Improvement and Extension Act of 2008, the Qualified Plug-in Electric Drive Motor Vehicle Credit has provided owners of electric vehicles (EVs) a major tax break in the form of a tax credit as high as $7,500. The intent behind this tax credit was to curtail the reliance by consumers on fossil fuels – which negatively impact our environment – while also providing a boost to the alternative energy sector of our economy. The thought was that taxpayers considering the purchase of an electric or hybrid vehicle for the reduced fuel costs and lower carbon emissions would be further incentivized to purchase an EV by way of this tax credit.
From its inception, this credit was set for a phase-out once 200,000 qualifying vehicles manufactured by a specific manufacturer had been sold in the United States. The phase-out takes effect in the second calendar quarter following the sale of the 200,000th vehicle by a specific manufacturer. Fifty percent of the total tax credit is allowed in the first two-quarters of the phase-out period, and this is then reduced to 25% of the total credit during the following two calendar quarters. So, for example, Tesla – which sold its 200,000th vehicle in July 2018 – began its phase-out period on January 1, 2019; and vehicles acquired after December 31, 2019, are no longer eligible for this credit. General Motors is one calendar quarter behind Tesla, and vehicles purchased after March 31, 2020, will also no longer qualify for the credit. There had been a strong push over the past year by auto industry lobbyists to postpone the phase-out of the EV tax credit, but Congress ultimately decided not to extend this credit. However, the good news is that many other automakers have joined the EV production field in recent years, and many of them will still qualify for the full tax credit for the foreseeable future.
You need to meet several requirements to qualify for the EV tax credit, including these: You must be the owner of the vehicle and the original use of the vehicle must begin with you; you must claim the tax credit in the year that the vehicle was placed in service; the vehicle must be acquired for use or lease and not for resale, and the vehicle must be primarily used in the United States. This credit can be claimed by filing Form 8936 for the Qualified Plug-in Electric Drive Motor Vehicle Credit. However, an individual taxpayer does not need to file this form if the only source for this credit is from a Partnership or S Corporation. Instead, the credit should be reported on Form 3800 for General Business Credits. Buyers should also request that the manufacturer or domestic distributor provide a copy of their IRS letter acknowledging that the vehicle is certified and qualifies for the credit, as well as the amount of the credit for which it qualifies.
AUTOMATED EXTERNAL DEFIBRILLATOR CREDIT —NEW YORK STATE
When walking through an office space or some other public building, it is not uncommon to come across a medical device known as an automated external defibrillator (AED), which is meant to be used by trained nonmedical personnel in the event that someone has experienced sudden cardiac arrest. The AED delivers an electric shock to the patient and helps the heart resume its normal rhythm. Using this device in advance of the arrival of first responders can often be the difference between life and death.
AED compliance laws have been passed over the years in all 50 states, and some states have incentivized the purchase of these devices in the form of a tax credit. In New York State, a business or an individual owner is entitled to a tax credit for the purchase of an AED during the tax year if the device was not purchased for resale. A credit can be claimed for each unit purchased and is equal to $500 or the cost of the device, whichever is less. When claiming the AED credit, taxpayers should be sure to adhere to the recordkeeping requirements, which include keeping copies of invoices, canceled checks and organizational documents. The credit is claimed on Form CT-250 for corporations and on Form IT-250 for anyone other than a corporation.
SECURITY OFFICER TRAINING TAX CREDIT—NEW YORK STATE
Certain “qualified building owners” may claim a tax credit of $3,000 annually for each “qualified security officer” used to protect their building space. To be considered a qualified building owner, the building owned must be classified as commercial. The building must also contain at least 500,000 square feet whose entrances, exits and common area are protected by a licensed and trained security officer. A qualified security officer must be legally and contractually employed, either directly by the building owner or through a service contract. In addition, the security officer must have completed the Officer of Counter-Terrorism certified security training program – which includes at least 40 hours of security training – in order to be deemed qualified.
The qualified building owner must fill out and execute an application within the annual filing period and must submit the application time to the NYS Division of Homeland Security and Emergency Services (DHSES). The applications are reviewed and awarded on a first-come-first-served basis, and eligible applicants approved by DHSES will receive a certificate showing the amount that the taxpayer can claim as a credit for the current year. An eligible credit may be reduced due to the limitation placed by DHSES on the total amount allowed to be claimed as tax credits by all taxpayers in any calendar year.
The Security Officer Training Tax Credit is claimed on Form CT-631 for corporations and on Form IT-631 for anyone other than a corporation. For a qualified security officer employed for less than a full year, the credit is prorated based on the length of employment. For any amount of the credit that is unused in the current tax year, the taxpayer can choose to have the overpayment credited to the following year’s tax or to have the amount refunded. Finally, taxpayers must retain for their records any information used to calculate the credits received. The information and supporting documentation may be subject to an audit by DHSES and should be retained for seven years.
There is another great quote that can be found on the IRS website from humorist F. J. Raymond: “Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.” It’s never fun when Uncle Sam comes calling for his tax check, but it is all the more gratifying when you can ask for some meaningful cashback in the form of a tax credit. Researching the multitude of tax credits available and figuring out which ones are most applicable to you may require effort and exertion on the part of yourself or your tax professional. But if you keep the message from Plato’s words in mind, you will hopefully wind up paying fewer taxes – rather than more – on the income that you have earned.