Stimulus Bill Shakes Up Tax Planning

/PRNewswire/ -- "The recently enacted American Recovery and Reinvestment Act of 2009 contains a long list of tax breaks that come with short-term expiration dates," says Bob D. Scharin, Senior Tax Analyst for the Tax & Accounting business of Thomson Reuters. This means taxpayers need to plan now and act soon in order to gain advantage from the legislation. While the provisions are many, explanations are sparse--so guidance from the IRS on how to implement many of the law changes is desperately needed. Here are highlights of the new tax-saving opportunities now available for individuals:

-- The "making work pay credit" provides a $400 ($800 for joint return
filers) tax credit for employees and self-employed individuals. This
credit is refundable--meaning you can get the money even if you owe no
income tax for the year. The credit is intended to reach your pocket
quickly through additions to your pay check. Eligibility for it phases
out, however, starting when your income exceeds $75,000 ($150,000 for
joint return filers). How will employers know whether the phaseout
applies to their employees--especially employees who are married or
who have two jobs? The law does not specify an answer, but if you
receive too much of a credit from your employer, expect to pay it back
when you file your 2009 income tax return.

-- Get a sales tax deduction for car purchases. The sales tax on up to
$49,500 of the purchase price is deductible regardless of whether you
(1) claim the standard deduction or (2) itemize your deductions and
choose to deduct state and local income taxes instead of sales tax.
The deduction begins to phase out, however, when income exceeds
$125,000 ($250,000 on a joint return).

-- The first-time homebuyer credit is enlarged and improved. The credit
for first-time homebuyers in part of 2008 is capped at $7,500 and has
to be repaid over 15 years. For the first 11 months of 2009, the
maximum credit is increased to $8,000 and repayment is not required
unless you sell the home or stop using it as your main residence
within three years. Here too, a phaseout provision applies if your
income exceeds $75,000 ($150,000 for joint returns). The credit for
2009 purchases can be claimed on your 2008 return. Should the form for
the 2008 credit be used to do so? Homebuyers need guidance from the
IRS quickly regarding the mechanics of claiming it.

-- The energy credit gets another life. Previously, you could claim an
aggregate "lifetime" credit amount of up to $500 for making certain
energy-efficient improvements to your home. For 2009 and 2010, the
credit computation is more generous, and the aggregate ceiling for the
two years is $1,500.

-- The mass transit benefit exclusion is bulked up. Previously, you could
exclude from income up to $120 per month of mass transit benefits
provided by your employer (or funded with pre-tax employee
contributions). Thanks to the new law, the figure rises to $230
starting generally in March 2009 and through 2010.

-- The Hope Scholarship credit is expanded in size and availability in a
variety of ways. Prior to the new law, the Hope Scholarship credit was
generally capped at $1,800 and available for only the first two years
of post-secondary education. The new American Opportunity tax credit
amends the Hope Scholarship credit for 2009 and 2010, raising the
credit maximum to $2,500 and its availability to the first four years
of post-secondary education. Furthermore, among other beneficial
changes, the income level at which the credit begins phasing out rises
too--from $50,000 ($100,000 for joint return filers) to $80,000
($160,000 for joint return filers).

-- Alternative minimum tax (AMT) relief has come early in the year. AMT
"patches," raising the AMT exemption amounts have become a year-end
ritual. This created anxiety and complicated tax planning, however,
for many individuals until that year's fix was in. For 2009, we
already know that the patch is sewn up. The AMT exemption rises to
$46,700 for unmarried individuals ($70,950 for joint return filers)
from $46,200 ($69,950 on joint returns) in 2008. If a patch were not
enacted, however, the 2008 amounts would not have applied in 2009;
rather, the way the Internal Revenue Code is written, the AMT
exemption amount would have dropped to $33,750 ($45,000 on joint
returns).



"The expiration dates on these provisions require taxpayers to watch the calendar." Scharin observes. For instance, purchasing a home after the first-time homebuyer credit expires can be an $8,000 mistake.

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Stimulus Package's Tax Credit for New Car Buyers Means Auto Shoppers Must be Prepared to Take Advantage of Savings

/PRNewswire-USNewswire/ -- The federal stimulus package signed into law by President Obama includes a $2.3 billion tax break for new car and truck buyers, which could save auto buyers hundreds of dollars. With potentially significant savings, auto shoppers should continue to do their homework in preparation for vehicle financing decisions, says AWARE (www.AutoFinancing101.org), a non-profit auto financing education group.

"This tax credit may make a new vehicle purchase more feasible for many consumers in the near future," said Eric Hoffman, spokesperson for AWARE. "Auto buyers should educate themselves about financing before making a purchase. Shoppers should maintain a solid credit track record, and shop around for financing among several sources, including banks, credit unions, financing companies and auto dealers."

As part of the stimulus package, taxpayers will be able to deduct the both local and state sales tax paid on new car purchases up to $49,500. The tax break will cover the purchase of any new car, domestic or foreign, through the end of 2009. Additionally, the deduction is "above the line," which means that it reduces the amount of a filer's taxable income. Eligible taxpayers must have an annual income below $125,000 for individuals or below $250,000 for families.

With the availability of this tax credit in the stimulus package, auto shoppers will see noteworthy savings on new car and truck purchases. Given this opportunity for savings, shoppers should continue to follow a proven approach to financing preparation, according to AWARE.

"Auto shoppers who are considering purchasing a car today or within the coming months should continue to educate themselves about the financing process," Hoffman said. "Our research has shown that consumers who are educated and informed about the auto financing process are the most satisfied with their auto financing decisions."

With the vehicle-buying opportunity presented by the stimulus package, AWARE reminds car buyers that the most important steps to prepare to finance a vehicle are:

-- Understand your credit history - When credit is tighter, as in today's
economy, consumers with a strong credit history will still obtain the
most attractive rates possible, while those with sub-optimal credit
may find fewer financing options. Check your credit rating by
obtaining your credit report from www.annualcreditreport.com.
Immediately contest any errors, settle outstanding debts, and build
your rationale for anything negative.

-- Evaluate your financial situation - Determine how much you can afford
to put down and pay on a monthly basis. A list of online auto
financing calculators and interactive budget worksheets can be found
at www.AutoFinancing101.org/LearningSuite. Once you settle on a
budget, make sure you stick to it.

-- Learn the language - Make sure you are familiar with common terms
you're likely to hear or read in the course of purchasing or financing
a vehicle, such as APR, down payment, fixed and variable-rate
financing, and on- and off-site financing. Many of these terms can be
found at www.AutoFinancing101.org/resources/glossary.asp.

-- Shop around for financing - Given today's marketplace, shopping around
is key. Compare financing from a variety of sources, including banks,
credit unions, financing companies, and auto dealers. It's in your
best interest to use the competitive market to your advantage by
considering all of the financing options available to you, and
choosing the one that best fits your individual needs.


A host of tools, calculators, articles and other resources to help consumers sufficiently prepare for auto financing decisions can be found on AWARE's Web site (www.AutoFinancing101.org) - available in both English and Spanish.

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