TAX DEDUCTION FOR VEHICLES

Where can I get information on the sales tax deduction on vehicles? I purchased a car and heard that I get a tax write off.

Igor

Igor, you have come to the right place. I can give you that information.

Taxpayers who buy new motor vehicles this year may be entitled to a special tax deduction for the sales or excise taxes on those purchases when they file their 2009 federal tax returns next year. I say "may" because if your income is too high the law phases out the deduction. See item 8 below.

Here are the facts.

1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.

2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.

3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. Motor homes are not subject to the weight limit.

4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

5. Taxpayers who purchase new motor vehicles in states that do not have state sales taxes may be entitled to deduct other fees or taxes assessed on the purchase of those vehicles. Fees or taxes that qualify must be based on the vehicles’ sales price or as a per unit fee. These states include Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

6. Taxpayers who purchase qualified motor vehicles may claim the deduction when they file their 2009 tax return in 2010.

7. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction.Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.

8. 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.

SOCIAL SECURITY HITS POTHOLE

For the first time since the 1980s, Social Security will have to pay out more in benefits than it will take in. The program is projected to run a $10 billion deficit in 2010 and a $9 billion deficit in 2011, but the funding gap will not affect payments to beneficiaries because the program has run a surplus in the past.

Increases in benefit applications during the recession have caused the deficits: Applications for retirement benefits have jumped 23% from the previous year, with disability claims up about 20%.

FIRST-TIME HOMEBUYER CREDIT

I just closed escrow on the purchase of my first ever house in July 2009. Is my Realtor correct that I can file an amended 2008 tax return to claim the special credit for first time home buyers? Is he also correct that this credit is mine to keep forever and doesn’t need to be repaid? I had read somewhere that the credit was just an interest free loan that had to be repaid on future tax returns. It sounds too good to be true.

Owen

Owen, your Realtor is correct that you won’t have to wait until April 15, 2010 to receive this credit, which can be as much as $8,000. You have the option to claim the credit on your original or amended 2008 1040, as long as the purchase has been completed. This can get tricky if your modified Adjusted Gross Income is over $75,000 ($150,000 for married couples) because that places you into the dreaded “Evil Rich” category as defined by our imperial rulers in DC.

In regard to repaying the credit, there was a change in the original program from what we had in 2008. For homes purchased in 2008, the credit must be repaid in 15 annual installments, starting with the 2010 1040. If the home ceases to be the main residence before the 15 year repayment time is up, the remaining amount of the credit will be due in one lump sum on that year’s 1040.

For homes purchased between January 1, 2009 and December 1, 2009 (the current end of the credit qualification period), the credit does not have to ever be repaid if you use the home as your primary residence for at least three years. If you move out of the home, sell it or convert it to business or rental usage before the three year anniversary of your purchase, you will be required to repay the full amount of the credit in one lump sum on the tax return for the year in which the home ceased to be your principal residence.

As with any tax law, there are even more twists to this one; so be sure to work with a professional tax advisor.

Good luck. I hope this helps.

Larry Kopsa CPA

DON’T LET YOUR GUARD DOWN

It is an unfortunate fact that during tough economic times businesses experience an increase in fraud. Perpetrators can include angry laid-off former employees or staff members who justify stealing because they're worried about job security.

At the same time, organizations are so overwhelmed by the economy that they let their guards down. The result is a perfect storm for devastating losses. Make sure that you are watching your numbers, they can be an indicator that you have a problem. For more information let us know.

Larry Kopsa CPA

ENERGY POSTINGS

'Slippery Slope: EPA Moves Forward On New Rules To Regulate Greenhouse Gas Emissions'

(New York Times) -- NYTimes.com reports, "Unwilling to wait for Congress to act, the Obama administration announced this week that it was moving forward on new rules to regulate greenhouse gas emissions from hundreds of power plants and large industrial facilities." Obama "has authorized the EPA to begin moving toward regulation, which could goad lawmakers into reaching an agreement." The EPA's move is "significant, because under the Clean Air Act, any facility emitting more than 250 tons per year of a regulated pollutant must meet federal requirements." Bloomberg notes that "under the proposal ... the EPA said it won't target small sources despite the way the Clean Air Act is written because doing so would lead to 'absurd results.'" Senate Republicans last week "failed to block EPA from regulating greenhouse gases from stationary sources during a debate over legislation that funds the agency." Bryan Brendle, energy and resources policy director for the National Association of Manufacturers, said, "The proposed EPA regulation of large industrial sources is a 'slippery slope' that may 'discourage a lot of investment' in the U.S." See the story at <http://www.nytimes.com/2009/10/01/science/earth/01epa.html?_r=1&scp=1&sq=%2b%22National+Association+of+Manufacturers%22&st=nyt>


'Sen. Johanns: Senate Climate Change Bill Is Left Of Obama, Pelosi'

(Sen. Johanns release) – In a news release, Senator Mike Johanns this week made the following statement regarding the climate change legislation introduced Sept. 30 by Senators Barbara Boxer (D-CA) and John Kerry (D-MA): "This bill is an assault on agriculture. It is to the left of Speaker Pelosi and to the left of the President. It will lead to higher taxes, higher energy costs, a tighter squeeze on disposable income, more lost jobs and lower standards of living. For agriculture, the costs are real and the benefits are theoretical -- our country's heartland is in the crosshairs of this national energy tax." The bill proposes reductions of 20% below 2005 levels by 2020, compared to the (House-passed bill) Waxman-Markey reductions of 17% and the President’s proposed reductions of 14% in the same period.


'Manufacturers Voice Concern Regarding Latest Global Warming Bill'

(NAM release) -- The National Association of Manufacturers (NAM) Vice President Keith McCoy this week issued the following statement on climate change legislation introduced by Sens. Barbara Boxer (D-CA) and John Kerry (D-MA): "While the legislation omits many key details, the NAM is concerned that the current draft of the Boxer-Kerry climate change bill introduced (Wednesday) will increase costs for manufacturers and consumers ... while resulting in little benefit to the environment." A recent NAM analysis "showed the (House-passed climate bill) would result in up to 2.4 million lost jobs, higher energy prices for businesses and consumers, and cumulative GDP losses of up to $3.1 trillion over an 18-year period." See the full release at <http://www.nam.org/NewsFromtheNAM.aspx?DID=%7bDAA0484A-3637-4F17-B416-566C5CF6DEFF%7d>


'Kerry convinced climate bill has a shot'

(The Hill) -- TheHill.com reports Democrat Sen. John Kerry (D-Mass.) said he is "convinced" that the Senate's climate change bill "has a shot to pass." The Hill notes that Kerry, a coauthor of the Senate climate bill, and other supporters of the bill have "framed the need for the legislation as a national security issue." http://thehill.com/blogs/blog-briefing-room/news/60869-kerry-convinced-climate-bill-has-a-shot-in-the-senate


'Senate global warming bill leaves out ag wishes'

(Des Moines Register) -- The Des Moines Register reports that the Senate's version of the climate bill "lacks many of the provisions sought by farm groups." The story notes that "the House bill has already been under attack from farm organizations because of the potential impact on fuel and fertilizer." See more at <http://www.desmoinesregister.com/article/20090930/BUSINESS01/90930045/1030>

DOLLARS PER CUSTOMER

Wouldn't you like to know what each customer costs you? It's easier than you think to figure out. You simply divide your expenses by the number of clients that walk through your doors.

Dollars Per Customer is a free service we offer our full-service clients. It is an interesting study of your financial information that allows you to view your income and expenses broken down per client. These numbers will obviously change over time, but the dollars per client should remain fairly constant. As more people come through your doors the numbers of clients will increase, but the dollars will as well, so this will give you a fairly good average.

Here's an example:

Let's say you pay $10,000/month in rent. In the last month you served 1,000 clients. Divide $10,000 by 1,000 clients and you get $10.00. This means that each customer costs you $10/month in rent.

This gives you a good idea of how Dollars Per Customer works. Granted, each individual salon's rent and number of clients will be different. Click on the following link to access Dollars Per Customer on our website: Dollars Per Customer

If you have any questions, shoot me an email at lkopsa@kopsaotte.com.

IF YOU ARE HIRING YOU MIGHT WANT TO WAIT FOR A NEW TAX CREDIT

Lawmakers and economists like the idea of a tax credit for new job creation. A proposal to give a tax credit to companies for hiring is getting support from U.S. lawmakers, as well as former Labor Secretary Robert Reich and Nobel Prize-winning economist Edmund Phelps.

Economists in the Obama administration have been researching the idea for several weeks, but the White House has not formally announced a plan. "There's a lot of traction for this kind of idea," said Rep. Eric Cantor, the Republican whip. "If the White House will take the lead on this, I'm fairly positive it would be welcomed in a bipartisan fashion."

The New York Times

BOOTH RENTAL AND CREDIT CARD MACHINES

Dear Larry,

I look forward to reading your blog every week- thanks for all the great information. I am in the process of converting my commission based salon to a booth rental salon; however, I am unsure on how to handle retail sales. Of course as a commission based salon most of our retail is run through the salon’s credit card machine. Can I still do this? Am I then treating the booth renters as employees? Please help me out.

Thanks,

Rachelle

Rachelle, good luck on your conversion to a booth rental operation. In regard to your question of paying the booth renters a stipend for sale of retail, I do not think that this alone would convert the individuals to an employee. As long as you are meeting all of the other tests and as long as you do not exert too much control, just because you are paying the individuals a commission on retail sales, does not turn them into an employee. Remember if you pay them over $600 in commission you will be required to give them a 1099.

You also asked about running the retail sales through your credit card machine. Certainly this is a possibility for the retail credit card sales. Regarding running the entire (including services) sales through the credit card machine, this is one strike against you as far as those individuals being an employee. It is possible to run through your credit card machine and withhold a percentage to reimburse you for your credit card costs, but this does make it more confusing and harder to explain should there be an IRS audit.

What I normally recommend is that each of the individuals has their own credit card machine, or one of the booth renters has a credit card machine and they work it out among themselves. Quite possibly, it might be in your best interest to simply sell your credit card machine to one of the booth renters and let them handle it.

I hope this has been some help.

It’s a pleasure serving you.

Larry Kopsa, CPA

WHAT'S HAPPENING IN HOUSING - NOT PRETTY

Ongoing flood of foreclosures seen as threat to recovery

Home-foreclosure filings exceed 6,600 per day, the Center for Responsible Lending reports, and there have been nearly 2 million already this year. More than 6 million families could face foreclosure over the next three years, Michael Barr, the Treasury Department's assistant secretary for financial institutions, said last month. The flood of foreclosures could wash out any economic recovery, Barr warned. CNBC/Reuters (10/8)

Banks, regulators work to prevent wave of option-ARM mortgage defaults: Obama administration officials and bankers are working to stave off an expected wave of defaults on pay-option adjustable-rate mortgages, banking sources said. A large number of these so-called option-ARMs mortgages will reset and call for higher payments soon, but a vast number of borrowers already can't meet their payments. The administration wants lenders to forgive some of the principal on these loans, but banks would like to see another solution. The Wall Street Journal (10/7)

Wachovia computer bug has limited mortgage modifications: A problem with computer software is preventing Wells Fargo unit Wachovia from modifying the majority of its distressed-mortgage holders under the Obama administration's $75 billion foreclosure-prevention plan, according to Michael Heid, co-president of Wells Fargo Home Mortgage. Wachovia has been able to process modifications for only 2% of its mortgage holders during a trial period. Wachovia will begin processing a larger number of loan modifications under the administration's program in the next couple of weeks, Heid said. The Wall Street Journal (10/8)

REVERSE MORTGAGE INFORMATION

Recently I published a question on reverse mortgages. Here is some additional information that was just published.

The popularity of reverse mortgages -- once seen as a resource for seniors despite their high fees -- is declining. The National Consumer Law Center released a report Tuesday highlighting potential problems posed by "aggressive reverse mortgage lenders who target the home equity of vulnerable seniors." With aggressive marketing, 115,000 reverse mortgages were issued last year, up from a few thousand in 2000. Forbes (10/6) , Bloomberg

Larry Kopsa CPA

OBAMA ADVISER SAYS THE GOVERNMENT SHOULD FORCE US TO SAVE

Obama adviser backs automatic savings programs

Austan Goolsbee, a member of the Council of Economic Advisers and the chief economist for the President's Economic Recovery Advisory Board, says he believes automatic savings programs are more effective than tax credits when it comes to getting people to save for retirement. "A lot of people have a hard time actually going down and saying, 'Take money out of my paycheck and put it in the bank,' ... but if you default them into a savings program ... you automatically have money put into a 401(k)," he said. "The evidence suggests that for a lot of people that's way more effective than even giving them big tax credits to encourage them to do it because people are too busy." The Washington Post

QUOTE OF THE WEEK

"We learn by example

and by direct experience

because there are real limits

to the adequacy of verbal instruction."

--Malcolm Gladwell

HARD HIT FOR BEAUTY INDUSTRY

It's a rough time in the salon industry. Read the following excerpt from the Milady website.

Early this morning, Conde Nast announced that they will cease production on four of their eminent magazines—most notably, Modern Bride and Elegant Bride. Although a hard hit for the beauty industry, this conversion only accentuates the central crisis in today’s publishing world. This year alone, publishers have closed numerous magazines, greatly reduced circulation, and sent countless journalists to the unemployment line.

Additionally, Questex Media, of American Salon and Spa and IBS Show fame, has filed for Chapter 11 bankruptcy. The conglomerate is currently responsible for publishing 23 print magazines as well as over 150 trade websites. According to a press release, the company debt will be sold to a group of shareholders.

INTERESTING INFO FROM THE U.S. CENSUS BUREAU

(The Washington Times) - Within 10 years, for the first time in the history of mankind, the number of people in the world age 65 and older will be greater than the number of people age 5 and younger, according to a new U.S. Census Bureau report.

2009 RECOVERY TAX INCENTIVES FOR INDIVIDUALS

I wanted to make sure that you did not miss the individual tax incentives that were in the American Recovery and Reinvestment Act. The Act provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient, and parents and students paying for college.

Here are six things the IRS wants you to know about ARRA tax incentives for individuals:

1. First-Time Homebuyer Credit Taxpayers who haven’t owned a principal residence during the past three years prior to the purchase date of a home before Dec. 1 of this year may be eligible to receive a credit of up to $8,000 on an original or amended 2008 tax return. They can also wait and claim the credit on their 2009 return.

2. New Vehicle Purchase Incentive Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels.

3. Making Work Pay and Withholding The Making Work Pay Credit lowered employees’ tax withholding rates this year and has already put more money into the pockets of wage earners. Self-employed individuals will have an opportunity to claim this credit when they file their 2009 return. Taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is currently being withheld: multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers, workers without a valid social security number, some social security recipients who work and pensioners. Failure to adjust your withholding in these situations could result in potentially smaller refunds or in limited instances may cause you to owe tax rather than receive a refund next year.

4. Tax Credit for First Four Years of College The American Opportunity Credit can help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student.

5. Certain Computer Technology Purchases Allowed for 529 Plans ARRA adds computer technology to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.

6. Energy-Efficient Home Improvements The credit for nonbusiness energy-efficient improvements is increased for homeowners who make qualified improvements to existing homes. Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

For more information on this and other key tax provisions of the Recovery Act, visit the official IRS Website at IRS.gov/Recovery.

COST TO RAISE A CHILD?

Wondering how much it actually costs to raise your children? Find out by using this calculator from WalletPop.

Cost to raise a child

QUOTE OF THE WEEK

Edmund Burke had it right when he said,

"All that's necessary for evil to triumph

is for good men to do nothing."

COMMENTS ON CASH FOR CLUNKERS

I received the following comments from one of our regular blog readers. I thought you might be interested in his thoughts.

"Larry, always enjoy your blog and the good business tips.

Was surprised at the piece on the clunker program. I do not think that entire math was carried out.

If 700,000 cars were sold and they were driven 12,000 miles per year, they save about 320 gallons of gas per year. Did this give the drivers additional funds to spend in the economy which could go on for several years? 560 million for the economy?

Did the sales of the 700,000 clunkers allow for auto parts suppliers to move inventory, perhaps pay down debt or invest in expansion? Did the sales of the 700,000 clunkers cause recall of unemployed workers, removing them from unemployment payments? Were auto taxes paid on the new autos? I assume that auto dealers were able to move some inventory, perhaps pay down debt.

On the down side, I think that 3 of the top sellers during the program were foreign cars. I do not know what the US content of those cars might be. Just some rambling thoughts."