Hire this Summer and Get a Tax Break

If you are an employer, you don’t want to overlook the HIRE Act tax benefits. If you are looking to hire some new employees, college students are a great idea for a summer position. This is exactly what Congress is trying to encourage people to do, hire an employee who hasn’t worked more than 40 hours in the last 60 days before getting hired, and you may qualify for a temporary tax break. Passed in March, the Hiring Incentives to Restore Employment (HIRE) Act would allow an employer with any qualified hire after February 3rd to skip paying the 6.2% Social Security taxes on the worker’s wages from March 19 through the rest of the year. This would save an employer nearly $2500 on $40,000 of pay.

A qualified hire would be someone who is unemployed this year (after February 3, 2010 and before Jan 1, 2011) and has not worked over 40 hours in the last 60 days.

The law is most useful to large corporations where they can use the HIRE provisions to save millions of dollars, but the law is also useful to small businesses. For example, these tax breaks work for businesses this summer who want to hire kids on summer break to help with paperwork or businesses that want to hire college students who haven’t worked elsewhere in the last 60 days and therefore, would be considered a “qualified employee.”

IRS Reminds Car Shoppers about 2009 Tax Break

In their new press release, the IRS reminded taxpayers looking to buy a car before the year is over that they still have time to take advantage of a 2009 tax break that may not be extended next year.

Taxpayers who buy a qualifying new motor vehicle this year after Feb. 16 can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.

Individuals who itemize and those who take the standard deduction can benefit from this tax break. In states without a sales tax, other taxes or fees can qualify if they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee.

The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle. Also, check the box on line 40b on Form 1040 or line 24b on Form 1040A. Individuals who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.

Post CFC Tax Incentives to Buy a Car

Now that the popular Cash for Clunkers (CFC) program has ended, consumers can no longer take advantage of a $3,500 or $4,500 rebate towards the purchase of a new car. However, the CFC program was just one of the many incentives the government has setup to encourage taxpayers to buy a new vehicle. For those of you debating whether or not you can afford a new car, check out the following list of Federal tax incentives.

New Car Purchase Deduction

To help stimulate the economy, earlier this year the IRS announced a new tax deduction for taxpayers who purchase a car in 2009. The new deduction allows you to deduct “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." Therefore, if you pay $2,500 in taxes when you buy that new car, then you can deduct those funds from your taxable income come next tax season. Just be sure to keep all of your sales documents so you have proof of the taxes you paid. Additionally, there is no word yet on whether the deduction will be extended or not. So, if you are planning to buy a car then you might want to do so before the end of 2009.

Hybrid Tax Credits

There are numerous tax credits that are still available for those of you hoping to purchase a hybrid, or alternative fuel vehicle. The highest of which is a $4,000 credit for taxpayers who purchase a Honda Civic GX that runs entirely on compressed natural gas. As opposed to the new car sales tax deduction, the hybrid incentives are tax credits, meaning it will lower your tax bill dollar for dollar. To see a list of all the qualifying vehicles, check out FuelEconomy.gov.

Electric Vehicles

Although somewhat less practical then a hybrid vehicle, electric powered automobiles come with the best set of tax incentives. As part of the Obama administrations American Recovery and Reinvestment Act of 2009, a new credit was created to encourage taxpayers to purchase electric vehicles. The credit is up to 10% of the purchase price, and depending on how much the vehicle costs, it could be a pretty significant tax credit. For those of you who might be hesitant, later in 2010 plug-in electric vehicles are expected to hit the market and will be eligible for a similar credit.

Vehicle Donations

If you decide to purchase a new vehicle, then you may want to consider donating your old car. In addition to knowing you are supporting a good cause, you can also reap certain tax benefits. There are several reputable charities that will take your still-running (sometimes even not running) vehicles. Just make sure that the charity you select has a non-profit status with the IRS, that way you can include the donation as a charitable contribution on your next tax return.

Conversion

If you are a mechanic, or are just handy with cars, then you might be able to take advantage of conversion tax credits. Another section of the American Recovery and Reinvestment Act of 2009 gives taxpayers who purchase a kit to convert their car to an electric vehicle a 10% tax credit, up to $4,000. Additionally, according to the IRS taxpayers may claim this credit even if they have already claimed a hybrid purchase credit.

Business Expense

Finally, if you are self-employed or own a business then you might be able to take advantage of certain business car credits. You could take a mileage deduction based on the amount you drive your car for business reasons. Alternatively, if you lease a vehicle then you could write off a percentage of the monthly payments that corresponds with the amount of time you use the car for work. These credits could save you up to $1,500 per year. However, business related vehicle expenses can be quite tricky, and if you intend to take this route then I highly recommend speaking with a tax professional before making any decisions.

California Lawmakers Scramble to Keep State's Last Car Factory Open

Lawmakers are struggling to save California’s last remaining car factory, NUMMI plant, in Fremont. The plant is operated by both GM and Toyota, and employs over 5,000 Californians. Legislators are hoping to push through a bill that will give the plant increased tax breaks, and a decision is expected this afternoon. Check out the following article from the LA Times discussing the issue.

"We believe that plant is a public good," said state Sen. Roderick Wright (D-Inglewood), who co-wrote the Senate bill. He added that his own Los Angeles County district is home to parts suppliers that would be affected should NUMMI close. "The fact that we could lose our last car manufacturing facility is unconscionable."

But amid Sacramento's grinding budget crisis, there is considerable doubt about how much money would be available to provide tax cuts to one of the world's largest companies -- and whether any amount of taxpayer-funded goodies would be sufficient considering the depths of the auto industry's woes.

"How many extra millions do taxpayers have to give Toyota to stay?" said Lenny Goldberg, executive director of the California Tax Reform Assn., who questions whether those kinds of incentives even work. "If you're going to give it away, give it away right."

Manufacturers have long complained about the cost of doing business in California. The legislation proposed this week would, in part, reduce that burden for the auto industry, sponsors said.

The bills, ABX4 31 and SB 830, would exempt NUMMI and other auto plants from sales tax on improvements and retooling of the plant, a process that can cost hundreds of millions of dollars. Toyota is not currently retooling NUMMI, but it could in the future to build fuel-efficient vehicles such as hybrids.

The Senate bill goes further. It would designate the plant and the area around it an enterprise zone, which provides a variety of other tax benefits. In addition, the bill would cut state fees that NUMMI pays for utilities, and it would encourage state and local agencies to buy vehicles made at the plant.

Legislators say they will urge Gov. Arnold Schwarzenegger to use the incentives as leverage with Toyota to keep the plant operating.

IRS Announces Tax Deduction For New Cars

The Daily Journal recently posted an article announcing and discussing the new IRS auto tax break. You can find the text of their post below, thanks to the Daily Journal.

The Internal Revenue Service 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.

“For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year,” said IRS Commissioner Doug Shulman. “This deduction enables taxpayers to buy now and get cash back later on their tax returns.”

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.

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.

“The vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction,” said New Jersey’s IRS Spokesperson Gregg Semanick.

The special deduction is available regardless of whether a taxpayer itemizes deductions on their return. The IRS reminded taxpayers the deduction may not be taken on 2008 tax returns.

For more information, go to the IRS.gov Web site home page and access the Update on Recovery Tax Provisions for Individuals and Businesses.

Compromise Stimulus Bill Trims Tax Break for Car Buyers

From The Los Angeles Times:

Congress has downsized a proposed tax break for new-car buyers. The compromise version of the ginormous economic stimulus bill includes a Senate-approved provision that would allow consumers to claim a federal income tax deduction for sales taxes and excise taxes paid on new vehicles.

But the compromise worked out between House and Senate negotiators deletes another provision that senators had approved, which would have made interest on new-vehicle loans deductible as well.

Under the new version, a family could save between $300 and $600 on a new car, according to a statement released by Sen. Barbara A. Mikulski (D-Md.), who sponsored the original tax break.

Mikulski had said her original version would have saved buyers $1,500 on a $25,000 new-car purchase.

According to Automotive News, the tax break was scaled back to appease lawmakers concerned about the high cost of the $790-billion stimulus package. Trimming the interest deduction from Mikulski's proposal cut the cost of the tax break from $11 billion to $2 billion.

Congressional leaders said Thursday that they hoped to vote on the stimulus package today and send it to President Obama by Presidents Day, which is Monday.