Energize your tax savings.

• Author: Spaniel, Bill
• Position: Tax Savings - Energy tax savings

If your clients save energy, they also can save on taxes. There are two types of energy tax savings available to businesses and individuals:

* Federal income tax deductions or credits for hybrid vehicles, electric vehicles or natural gas-powered vehicles.

* A California tax credit for individuals for use of solar or wind energy systems.

SWITCH POWER FOR SAVINGS

Clients who want to reduce pollution and increase gas mileage at the same time can receive a tax deduction if they purchase certain energy-saving--or hybrid--vehicles. The deduction also reduces self-employment taxes imposed on Schedule C or F profits.

These hybrid cars are powered by gas and electric motors. The IRS certifies the Toyota Prius (model years 2001-03), Honda Insight (model years 2000-02) and Honda Civic Hybrid (model year 2003) as hybrid vehicles and deems them eligible for a tax deduction. Those who bought these cars new can claim a $2,000 federal tax deduction for the year in which they first used the car.

Individuals also can get a $2,000 federal tax deduction for vehicles powered by natural gas, liquefied natural gas or liquefied petroleum gas, as well as hydrogen-powered vehicles purchased between 1992 and 2003. The deduction applies to the year the vehicle was first used, and the vehicle must be purchased new or converted from gas to the new power source.

Purchasers of either hybrid or other alternate-fuel vehicles can take the deduction as an adjustment to income and don't have to itemize. If they use the vehicle strictly for business, the deduction goes on the "other expenses" line of either Schedule C (1040) or Schedule F (1040). If they missed claiming the deduction for a previous year, just file an amended return.

Only two of Playa del Rey CPA Ernest Howard's 600 clients have actually purchased a hybrid and received a deduction.

"One of them got rid of his BMW and now is getting 60 miles per gallon with his Prius," Howard notes.

Clients with all-electric vehicles also can enjoy a tax credit--10 percent of the cost up to $4,000 for vehicles purchased new between 1992 through 2003. To claim the credit, complete Form 8834: Qualified Electric Vehicle Credit. Again, the credit applies to the year the vehicle is first used. All-electric vehicles, however, don't qualify for the tax deduction that applies to hybrid vehicles.

DEDUCTIONS FOR FLEETS

The IRS offers deductions to fleet operators for using clean-fuel vehicles. For vehicles purchased and used before 2002...