Tuesday, July 27, 2010

9 Warm Weather Ways to Lower Your Tax Liability

It is quite unbelievable that August is just around the corner, and as the triple digit heat is keeping many indoors, there are a few things you could do to both make your summer more enjoyable, and lower your tax liability. Making tax savvy decisions throughout the year can ensure a lower tax liability come April.

1. Upgrade your Air Conditioning

If you have an old air conditioning system, and looking to upgrade, not only will a new, energy efficient model reduce your electric bill but it can also lead to a federal tax credit. The American Recovery and Reinvestment Act of 2009 created a $1,500 tax credit for energy efficient home upgrades, and if you purchase a qualifying model it could result in significant tax savings.

2. Enroll in a Local College Class

Looking for a way to spend some of your free time on the weeknights or weekend? Consider enrolling in a local college class. Not only will you be able to pick up new skills that could help improve your career, but you can take a tax deduction for tuition and other mandatory school fees. This is called the Tuition and Fees Deduction, and is reported directly on Form 1040 or Form 1040A.

3. Dual Pane Windows

Single pane windows were common among houses built a few decades ago. If your home still has single pane windows, I highly recommend upgrading to dual pane. They will increase the value of your home, lower your energy bill, and can qualify for the $1,500 energy tax credit.

4. Install Solar Panels

Next time you are outside and feel the heat of the sun beaming down on you, consider installing solar panels on your rooftop. They may be expensive, but you can claim a tax credit for up to 30% of the price of the upgrade on your next tax return. To learn more about solar tax credits, check out this link at EnergyStar.gov.

5. Volunteer with your Children

If you have children that are out of school on summer break, consider taking them to volunteer at a local charity such as a soup kitchen or meals on wheels group. Although there is no deduction available for volunteering your time, all expenses related to the effort are deductible such as supplies donated, or miles driven while volunteering.

6. Send your Kids to Day Care

Parents of children under the age of 13 can quality for a tax credit if you need to send them to a day camp during summer break. The costs associated with enrolling your children in day care can count towards the Child and Dependent Care Credit.

7. Start a College Savings Account

Although most students have the summer off, the new school year is going to begin in just a few weeks. As your children get older, you might want to think of opening a 529 college savings account. There are two different types of 529 plans, but they both have significant tax benefits.

8. Throw a Summer Office Party

If you run a small business, then throwing a summer office party is a great way to show your employees how much you appreciate their hard work. Additionally, the cost of supplies such as food and beverages are fully deductible business expenses.

9. Buy an Energy Efficient Vehicle

As I explained in this blog entry from a few weeks ago, there are still plenty of vehicles that qualify for a federal tax credit. During the summer months plenty of dealerships offer incentives for buying a car, meaning you can get a great deal on a new vehicle and a valuable tax credit.

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