Tax Break for New Car Purchases

The IRS announced today that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.
The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

Example:
I buy a new car for $25,000 and pay 7% State Sales tax of $1,750 (25,000 x 0.07), I may be entitled to a Tax Deduction of $1,750 on my 2009 taxes next year.

The IRS is trying to promote individuals to keep buying in a down economy and while there are good incentitives out there like the First-Time Home Buyer Credit, this one is not.  If you were planning on buying a new car or need a new car then great, take the the deduction.  For most of us, we don’t NEED TO PURCHASE NEW.  Instead think about putting that money to work for you in an Interest Earning Account, where you can access it for emergencies but still earn interest.
Some other notes on the new Tax Break for New Car Purchases…

• The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
• Vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.
• The special deduction is available regardless of whether a taxpayer itemizes deductions on their return.
• The deduction may not be taken on 2008 tax returns.

How to File an Amended Tax Return

Oops!  I messed up my tax return and now don’t know what to do.
Surprisingly, the IRS makes re-filing a tax return or an Amended Return pretty easy to do.  Follow the steps below and you’ll be outta the clear in no time…or richer!

1. Only File an amended return if you discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.
2. Generally, you do not need to file an amended return for math errors as the IRS will be ale to make the correction for you.
3. You also do not usually need to file an amended return because you forgot to include W-2s or schedules; the IRS normally requests those forms from you.
4. Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed 1040, 1040A, or 1040EZ.  It does not matter if you filed manually or electronically, the 1040X will work for both.
5. Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
6. If the changes involve another schedule or form, attach it to the 1040X.
7. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
8.  If you owe additional tax for 2008, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return (usually 4-15).

Tax-free New Car Purchase

The IRS is offering a tax break for individuals who purchase a new car, light truck, motor home or motorcycle. You can read about the original announcement here.
Here’s a quick guide of how it works…

• State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
• Qualified vehicles generally include NEW: cars, light trucks, motor homes and motorcycles.
• Purchases must be after Feb. 16, 2009 and before Jan. 1, 2010.
• The tax deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
• Claim this deduction when filing your 2009 federal income tax return not your 2008 taxes.
• The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

If you are considering buying a new vehicle this tax incentive means there has never have been a better time to buy.   But if you can do without, you’ll save even more!

How to claim Cash for Clunkers

Probably by now, most of you know what the “Cash for Clunkers” or CARS program is. If not, it’s a way to trade in your old, gas guzzling car for a new one and you’ll get $3,500 or $4,500 from the government, right away, for free.

The official site with all the FAQs can be found here: http://www.cars.gov/

Here is the quick read of what rules apply…

* Your vehicle must be less than 25 years old on the trade-in date
* Only purchase or lease of new vehicles qualify
* Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
* Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
* You don’t need a voucher, dealers will apply a credit at purchase
* Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
* The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.
* It does not matter if your trade-in or new purchase is foreign or domestic, both qualify.
* Consumers should expect that all information collected through the CARS Program will be kept confidential. Social Security numbers are not required for a CARS transaction.

It’s easy to take advantage of. Toyota, Ford, and GM (if you really want to) all have sites dedicated to CARS.

For some people, this handout could be worth it.

Example: You have a 1996 Buick Century and it gets 15 mph/ gallon. You have owned it for over 1 year and have the money to finance or purchase a new car. In this case, go for it! You’d be crazy not too.

On the other hand, if you have a good working car, that gets you over 20 mph/ gallon, think twice. Do you really need the new car? Check out my previous thoughts on purchasing new vehicles and you decide.

Reminder: New cars can qualify for a tax deduction. The sales tax on new car purchases can be deducted on next year’s tax return.

How to Reduce Taxes with a Home Office

Do you use part of your home for business? If so, you claim a deduction on your taxes!

Many taxpayers may be able to take a home office deduction when filing their federal income tax return next year. Listed below are some important things you should know when claiming the home office deduction.

* Generally, you must use part of your home exclusively and regularly: As your principal place of business OR as a place to meet or deal with patients, clients or customers.
* The amount you can deduct depends on the percentage of your home that you use for business. (Example: Total square feet of house ÷ Office square feet)
* Your deduction for expenses will be limited if your gross income from your business is less than your total business expenses.
* If you are self-employed, use Form 8829 (instructions for Form 8829 here) to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040.
* Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for “the convenience of your employer.” If your employer provides an office and you choose to work from home, generally, this does not qualify.

For more information see IRS Publication 587, Business Use of Your Home