What's New in Taxes – December 2010

Save energy and taxes: An IRS reminder

The IRS recently issued a bulletin reminding taxpayers that making energy-saving improvements to their homes before the end of the year can lower their taxes for 2010.

The credit allows you to claim up to 30% of the cost of energy-efficient windows, doors, certain roofs, high-efficiency heating and air conditioning systems, water heaters, and other energy-saving improvements to your principal residence. The maximum credit for amounts spent in 2009 and 2010 is $1,500.

A second energy credit is available to encourage investment in alternative energy equipment such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

The IRS cautions homeowners to check the manufacturer's tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer's website or with the product packaging. Not all energy-efficient improvements qualify for the tax credits. The manufacturer's certification is different from the Department of Energy's Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

How to deal with an audit notice

The number of IRS audits has doubled over the past ten years. Coupled with the new informational filing requirements for businesses, your chances of an IRS audit notification are not insignificant. If the IRS should come calling, here are some things to consider.

First, be aware that the IRS can contact you either by mail or phone. The majority of audits take the form of a mailed notice requesting certain information. These are often easily handled, but don't automatically assume that you know what the IRS wants. The best first step is to contact our office and provide us with a copy of the notice. It's critical to reply to the request by the deadline shown on the notice. For added safety, respond using certified mail.

However, the IRS might first notify you of an audit by phone. Phone notifications are on the rise, and, unfortunately, scam artists are taking advantage of this fact. The call you receive might not be from the IRS at all, but instead from an imposter hoping to gain access to your personal information.

If it is truly the IRS on the line, be aware that the agent will carefully document every word you say and perhaps use those words against you. To protect yourself, simply take down the agent's name and contact information, and tell the agent that your professional representative will be following up with him or her. Don't engage in idle chitchat or answer any questions, even innocent-sounding ones.

Later on, the audit might result in a personal visit to your home or business to allow the agent to gather more information. These audits are referred to as field audits. You could also be summoned to the agent's office. In either case, never go it alone. Keep us and/or your attorney abreast of all developments. And never just ignore a notice - that could make matters much worse.

Your best defense against an audit might be to take steps to minimize your risks. Maintain complete and accurate records. Save important tax receipts for seven years. And stay familiar with the latest tax rules.

The odds of an IRS audit might be rising, but knowing what to do, and who to contact first can make the experience less stressful. Our office stands ready to assist you should the IRS ever call your number.

For more information on tax deadlines that apply to you or your business, contact our office by phone at 408-879-9990 or by email at cpa@cpasllp.com. You can also visit our website http://www.cpasllp.com/ for more details.