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Special Tax Break Available for New Car Purchases This Year

5K views 9 replies 8 participants last post by  Bodycount 
#1 ·
My wife told me we(you) get a tax break this year for new car purchases. -Gary

IR-2009-30, March 30, 2009
WASHINGTON — 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. http://www.irs.gov/newsroom/article/0,,id=205863,00.html
 
#3 ·
From what I read it's not a tax credit. It's a tax deduction.

Someone correct me if I'm wrong here as I do not know IRS lingo very well.

A tax credit is something like the $8000 you get for being a first time house buyer. It's free money they just give you. All you have to do is buy a house.

A tax deduction is an amount you can subtract from your adjusted gross annual income. It's not a credit where you get all that money back. It just makes it so the IRS thinks you made "X" less that year where "X" equals the amount of the deduction. It basically puts you in a lower tax bracket which in turn you get more of a refund back.

My Soul had around $1230 in taxes that I had to pay. If I'm understanding this correctly, I will NOT get $1230 extra on my tax return in 2010 when I file. I will have made $1230 less in what the IRS sees thus moving me into a lower tax bracket.


Anybody else want to chime in on this as I'm confused as hell really.
 
#4 ·
Here's an example I found on another website:

Sally is a teacher who made $45,000 last year. She incurred $250 in expenses to stock her classroom and this is an allowable deduction. When deducted from her income, her new taxable income is $44,750. Deducting this $250 saved her $62.50 in taxes ($250 * 25%).
 
#6 ·
Bodycount, you've got it right. And depending on how close you are to the top of your current tax bracket, this deduction may not move you down any. If you don't itemize, you won't get it. The actual savings on the tax bill may only be $20 bucks depending on what your taxes are and how much you itemize.

A credit is a 1 to 1 thing. You pay $1200 in sales tax, you get credit for that on your federal return. If your federal taxes are $2000 then you subtract out the $1200 and only pay $800.

For me, a tax deduction isn't worthwhile because with everything else I itemize, I only pay about a grand/year to live here and benefit from the federal service. I can't really complain about taxes from that perspective.
 
#9 ·
There have been always two ways to file your form 1040, take the standard deduction or itemize your deductions (medical, contributions, real estate/personal property taxes, interest, and other miscellaneous deductions. If by itemizing it gives you a higher deduction than the standard deduction (5,700 if you are single/11,400 if married) this will provide a greater tax benefit and you will pay less in Federal income taxes. In the past you could deduct sales and local taxes (on a car purchase as an example) only if you itemized. If you did not have enough itemized deductions the use of the sales and local taxes were wasted. However, under the new tax law you are now allowed to add the amount to your standard deduction even if you do not itemize. Deductions reduce your adjusted gross income from which your personal exemptions are subtracted than multiplied by the appropriate tax bracket that you are in. Tax credits are not subtracted from your taxable income but instead subtracted from your tax liability, dollar for dollar.
 
#7 ·
I wish it was a credit.. when I got laid off I cashed out my retirement plan 2 weeks before I got a new job.. ugh.. then they messed up on a 401k loan deduction and I defaulted on that.. I'm gonna get hammered LOL
 
#8 ·
My mother is my tax person and brought this to her attention a few months ago. None of it makes sense to me and I am good with numbers. I just could care less about my taxes. Have to pay them to live in any country and I like mine. I don't see the return until the next year anyways, so it is like a bonus check that ends up going to bills anyways.
 
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