Here are a few more tax credits to help you reduce what you owe
USING tax credits helps reduce your Hawaii tax liability. Most taxpayers know about common credits, one being the child care expense credit. The following are credits that are often overlooked or misunderstood:
» Child passenger restraint systems (safety seats)
A $25 refundable tax credit is available to any taxpayer filing an individual income tax return who purchased one or more child passenger restraint system (safety seat) within the taxable year.
The safety seat must be in compliance with specifications set forth by federal motor vehicle safety standards in place at the time of purchase. The credit is claimed on the individual income tax form and an invoice or receipt must be filed with the return.
» Renewable energy technologies
Corporate and individual taxpayers who file income tax returns are allowed a credit for every eligible renewable energy technology system that is installed during taxable years after Dec. 31, 2005.
Renewable energy technology includes solar thermal energy systems, wind-powered energy systems and photovoltaic energy systems. The credit amount varies based on energy system type and property type.
For the 2006 tax year, the credit for solar thermal energy systems is equal to the lesser of 35 percent of actual costs or $2,250 for single-family residential property or $250,000 for commercial property.
The credit for wind-powered energy systems is equal to the lesser of 20 percent of actual costs or $1,500 for single family residential property or $500,000 for commercial property.
This credit is nonrefundable, but any excess credit over tax liability can be carried forward to future years and combined with subsequent credit amounts.
» Capital goods excise tax
The capital goods excise tax credit is a refundable credit equal to 4 percent of the cost of tangible depreciable property placed in service in the taxpayer's trade or business during the taxable year. To qualify for the credit the taxpayer must have paid the 4 percent general excise tax or use tax when the property was purchased or imported into the state.
Tangible personal property for purposes of the credit includes all property contained in or attached to a building (not including structural components) such as production machinery, printing presses, transportation and office equipment, refrigerators, grocery counters, testing equipment, display racks and shelves and signs.
Property considered machinery that is located outside a building such as a gasoline pump, hydraulic car lift or automated vending machine will also qualify for the credit.
Certain property is specifically excluded from qualifying for this credit, including land, improvements, buildings, structural components, permanent structures, central air conditioning or heating units and property used to furnish lodging.
Tangible property also must be subject to depreciation to qualify for the credit. Any portion of the property not subject to deprecation is disallowed for purposes of the credit. For example, if equipment is used 90 percent for business and 10 percent for personal use, only 90 percent of the cost is eligible for the credit.
Partners, beneficiaries of trusts and shareholders of S corporations can claim their allocable share of the credit on their individual income tax returns. Individual taxpayers can claim the credit for property used in trade or business relating to a sole proprietorship, but not for property relating to rental activities since rental property is disqualified under the rules.
EACH credit helps to reduce your Hawaii income tax liability. You should make sure to review the Hawaii credit forms to see if any apply to you or your business.
Nicole Wyngaard is a tax manager for the Honolulu office of Grant Thornton LLP. She can be reached at Nicole.Wyngaard@gt.com