Energize your tax savings. (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, fleet operators can take a $50,000 deduction for vehicles more than 26,000 pounds, $5,000 for vehicles more than 10,000 pounds and $2,000 for vehicles 10,000 pounds and less. Operators of their own refueling stations for clean-fuel vehicles can claim a $100,000 deduction per facility for the year the equipment was installed. One note: The deduction drops 50 percent in 2003 and 75 percent in 2004. After 2004, the deduction is unavailable.

WIND AND SOLAR SAVINGS

As they say, the best things in life are free. For now, Californians who use the wind and sun to energize their homes or businesses get a tax break.

The California Legislature passed a law in 2001 that provides homeowners and private businesses with tax credits for using solar energy (which includes wind) as their electricity source.

Homeowners and businesses that purchase and install photo-voltaic--or solar--panels or wind-driven generators get a 15 percent credit of the net cost of the system for installations between Jan. 1, 2001, and Dec. 31, 2003. The credit drops to 7.5 percent for the tax years between Jan. 1, 2004, and Dec. 31, 2005. After 2005, the tax credit is gone.

The net cost is the balance remaining after deducting any government incentives regarding the system. As an example, the California Solar Energy Industries' website shows that a residential solar panel project costing $24,000 would get $10,730 in rebates. With a tax credit of $1,990 (15 percent of the net cost of $13,270), the actual cost of the project is $11,280.

There are other restrictions: Taxpayers must use the energy system primarily to meet their own needs, and the system must have a rated peak generating capacity no greater than 200 kilowatts. For the 2001 tax year, the Franchise Tax Board says about 1,600 taxpayers received $2.6 million in credits.

Danville CPA Mary Kay Foss, chair of the CalCPA's Committee on Taxation, said she only had one client who took advantage of the solar tax credit last year.

"She did volunteer work for Greenpeace," recalls Foss. "She had solar panels put on her house."

If you have a client eligible for the solar credit, complete California Form 3508.

Bill Spaniel is Ca/CPA's public relations manager. You can reach him at [e-mail].

ENERGY WEBSITES

Energy-related deductions or credits are scheduled to decrease or end in the years ahead, but the rules and laws are always subject to change. These sites provide information about tax laws related to energy, as well as information about energy-saving vehicles and products:

www.irs.gov (IRS)

www.ftb.ca.gov (Franchise Tax Board)

www.calseia.org (California Solar Energy Industries Association)

www.consumerenergycenter.org (California Energy Commission)

www.fuelcellpartnership.org (California Fool Cell Partnership)

www.fueleconomy.gov (U.S Department of Energy)