Friday, May 22, 2009
I am purchasing two new cars this year and want to take advantage of the new tax deductions for sales taxes paid. What are the rules for claiming these deductions?
Ben P., Omaha, NE
In order to claim any sales tax deductions, the car must be purchased after February 16, 2009, and before January 1, 2010, in order to qualify. In addition, only the sales tax on the first $49,500 of the cost of the vehicle is actually tax deductible.
The IRS has very recently issued guidance that indicates that the cap will apply to each car purchased and not to all cars purchased in one year. This is a nice break for taxpayers, as if you buy two cars and each costs less than $49,500, all of the sales taxes paid will be deductible. There are some special rules for this tax break:
- If you itemize your deductions on Schedule A, you can claim these taxes paid in the “taxes” section.
- If you do not itemize your deductions, you can still claim this deduction by adding the sales taxes paid to your overall standard tax deduction.
Finally, like many other favorable tax breaks, this one also has income phase outs. These start for married couples who earn over $250,000 and single filers who earn over $125,000.
Sunday, May 10, 2009
There are major tax differences from state to state, varying from no state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) to those with limited taxes (New Hampshire and Tennessee tax only interest and dividends) to low (Illinois and Pennsylvania tax at 3% or so) to very high (California, Vermont and Rhode Island are all over 9%).
As such, many taxpayers wish to move out of high tax states and into states with little or no state income taxes (the differences can result in a savings of thousands of dollars per year). Please be aware, however, that the IRS tax return will look the same in the new state, as federal tax law applies to all 50 states.
Here are a few tips if you are looking to change your state tax base:
- Sell current personal residence and move.
- File state tax returns for new state showing residency there. Also, use new state’s address on returns filed with IRS.
- Change drivers licenses and voters registration cards to new state. In addition, register all vehicles in the new state to establish a nexus to this state.
- Change bank accounts to a branch in new state.
- Execute a new will or living trust using new state as current state of residence.
Labels: State Taxes